PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
There's a prescription for promising investments in both the pharmaceutical and biotechnology sectors. So say Standard & Poor's analysts Herman Saftlas, speaking for the pharmas, and Frank DiLorenzo on biotech. DiLorenzo reports that biotechs have been outperforming the S&P 500 index, and Saftlas adds that pharma stocks are back with the market uptrend, having sagged in the second quarter. S&P has several strong buys, DiLorenzo says, including Amgen (AMGN ), Celgene (CELG ), Genzyme (GENZ ), Martek Biosciences (MATK ), MedImmune (MEDI ), and Millennium Pharmaceuticals (MLMN ).
None of the large pharmaceutical companies rates a buy from S&P, according to Saftlas, but he does have that top rating on Barr Pharmaceuticals (BRL ) and Mylan Labs (MYL ). And on the next rank down (accumulate) he cites Wyeth (WYE ), Pfizer (PFE ), and Eli Lilly (LLY ).
These were some of the points Saftlas and DiLorenzo made in an investing chat presented Sept. 16 on America Online by BusinessWeek Online and Standard & Poor's, in replying to questions from the audience and from BW Online's Jack Dierdorff. Edited excerpts follow. A full transcript is available from BusinessWeek Online on AOL at keyword: BW Talk.
Note: Herman Saftlas and Frank DiLorenzo are analysts with Standard & Poor's Investment Advisory Services. They have no affiliation with or ownership interest in any companies under discussion. Other S&P affiliates may provide services to the companies under discussion.
Q: How have the pharma and biotech sectors been doing relative to the S&P 500's performance? DiLorenzo: Biotech has outperformed significantly this year.
Saftlas: On the pharma side, earlier in the year they were going in tandem with the market, then slipped in the second quarter. More recently they have joined in the uptrend.
Q: What are your 5-STAR [strong buy] picks in the pharma and biotech space? Saftlas: In the large pharma area, I don't have any 5-STARS. And I have two 5-STARS in the generic space. They are Barr Pharmaceuticals (BRL ) and Mylan Labs (MYL ).
DiLorenzo: On the biotech side, our 5-STAR stocks include Amgen (AMGN ), Celgene (CELG ), Genzyme (GENZ ), Martek Biosciences (MATK ), MedImmune (MEDI ), and Millennium Pharmaceuticals (MLMN ).
Q: Also, can you list the 1-STARs [sell] as well? Are there any, or any 2-STARs (avoids)? DiLorenzo: On the biotech side, we don't have any sells or avoids only because the market has been extremely strong, and it's difficult to go against the positive uptrend in biotech right now.
Saftlas: I also don't have any sells or avoids at the present time for the same reasons -- positive outlook.
Q: What about valuations in your areas? Are they a problem for some stocks? Saftlas: In the pharma area, the current p-e valuations are very comparable to the market. Many actually trade below the market -- the average is close to the market. In the specialty generic area, many sell above the market.... That reflects the stronger growth prospects in that segment.
DiLorenzo: Overall, considering the strong growth rates we expect for biotech, we think the multiples are reasonable. The one stock that has a higher relative valuation in comparison to other biotechs would be Genentech (DNA ).
Q: What do you see in Pfizer's (PFE ) future? Saftlas: I still expect PFE to post strong mid-teens or better EPS [earnings per share] growth over the next few years. That reflects significant cost savings from the recent merger with Pharmacia. And they have a pretty strong pipeline of new drugs that should power top- and bottom-line growth.
Q: Any opinion on Ivax (IVX ) or Elan (ELN )? Saftlas: I cover Ivax, I don't cover Elan. I have a hold rating on Ivax. Ivax is a very strong company with 39 generic submissions before the FDA, and they just today announced plans for a generic tablet form of Pfizer's Neurontin drug. They also have some new products in the respiratory area.
The only concern is that they have a very large capital base -- something like 195 million shares -- and earnings per share this year of only about $0.70 (that's what we're projecting). Therefore, the p-e is...relatively higher than average.
Q: Where do you see Eli Lilly (LLY ) in a year or two from now? Saftlas: We have a hold ranking on Eli Lilly, but we do see the company resolving its manufacturing problems. And we do see new products eventually getting approved. That should support 12 months from now a price target of $68.
Q: How about Abbott Laboratories (ABT )? DiLorenzo: We're positive on the stock overall. Our current rating is an accumulate. The main catalyst we see for adding value includes strong growth in sales of Abbott's pharmaceutical products, led by Humira. The drug is also being testing in a number of other inflammatory conditions (it's currently used for rheumatoid arthritis).
We expect a rebound in 2004 in Abbott's nutritional products. We also expect a rebound in sales of U.S. diagnostic products, assuming Abbott can resolve compliance issues with the FDA by the end of this year. I would also note that in our opinion we view the planned hospital-products spinoff positively, since we believe it will allow Abbott to focus on higher-growth areas on a long-term basis.
Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
