Marcial: Best Biotechs for 2009

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BW's Gene Marcial

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Top Pick: Genentech

The stock of Allos, which focuses on developing small-molecule therapeutics for cancer treatment, has climbed from 3.82 on Oct. 10, 2008, to 6.47 on Jan. 9. Monane believes Allos has opportunities to enter into partnerships with Big Pharma on some of its products. His 12-month target for the stock is 12.

Cytokinetics (CYTK), which is developing small-molecule therapeutics for cardiovascular disease, has risen from 1.66 a share on Nov. 21, 2008, to 2.68 on Jan. 9. Monane has a 12-month price target of 11.

Arena, which has developed a screening assay using its proprietary technology, is also on the rise, from 2.70 a share on Oct. 24, 2008, to 3.78 on Jan. 9. Monane expects the stock to hit 14 in 12 months.

And Gilead, a big-cap biotech that develops drugs to advance the care of people suffering from life-threatening diseases, has climbed from 35.60 a share on Oct. 10, 2008, to 48.23 on Jan. 8. Monane's price target: 51.

Another avid biotech follower is John McCamant, editor of the Medical Technology Stock newsletter in Berkeley, Calif. Genentech, the world's largest biotech company in market cap, is his top pick for this year.

The Obama Factor

Genetech's No. 1 product, Avastin, approved by the Food & Drug Administration in 2004 for first-line treatment of metastatic colorectal cancer, is a blockbuster, with sales of $3.2 billion in 2007. Analysts expect Avastin sales increased by 18% in 2008. The stock is one of the big winners in the industry, zipping up from 66.50 a share on Jan. 23, 2008, to 86.25 on Jan. 9, 2009. Roche, which owns 55% of Genentech, offered to acquire the shares it doesn't yet own at 89 a share. Genentech rejected the bid as too low.

McCamant believes Roche will up the ante and raise its bid to the 95-100 range. He figures that with the global recession, Genentech is likely to welcome such an offer—sooner rather than later.

McCamant's second pick is Elan Cop. (ELN), one of the worst biotech performers in 2008. Its stock has crashed from 37.45 on July 10, 2008, to 8.37 on Jan. 9. At its depressed price, all the potential bad news appears to be already reflected in the stock, he says. One underappreciated asset of Elan, says McCamant, is the Alzheimer's drug it is developing in collaboration with Wyeth (WYE). McCamant owns Elan shares.

His third pick: Immunogen (IMGN), which is developing antibody-based therapeutics for cancer. Its proprietary technology enables the production of antibodies with the capacity to deliver cell-killing agents directly to the tumor. Immunogen's stock has been on the rise as well, pushing up from 2.47 a share on Oct. 10, 2008, to 4.49 on Jan. 9. McCamant also owns Immunogen stock.

The "Obama factor" will likely benefit the biotechs, argue some analysts. Once sworn into office, President-elect Barack Obama is expected to focus more attention on health care, including support for biotechs, and foster innovation and increased prescription drug coverage. The added attention may be just one more catalyst for a good year for the biotech group.

Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.