Sunday, May 08, 2005

The single most attractive sector now

A number of factors now make the biotech/medical devices sector the most attractive. There is the oft-quoted demography change in developed nations, but I will limit my list to more immediate/financial factors.
  • Big pharma has had a few drug setbacks lately, and at last, the very use of single-objective chemical drugs is now being questioned. They will be forced to partner with or buy outright the smaller/smarter biotechs.
  • Under the one-time tax-amnesty on foreign profits repatriation the top 5 pharmas are eligible to bring back over $80 billion! I expect a large portion of this to go towards acquisitions, given that the pharmas have no debt problems.

    Pfizer just announced that it is planning to bring back over $10 billion under this rule. This is in addition to the $20 billion it has already planned to repatriate under the same rule.
  • The insider buying in many of these small biotechs has increased dramatically over the last few months. Assuming a lead time of around 8 / 10 months, we should see some action by the end of this year.
  • The generics competition/patent expiration/weak pipelines/possible, indirect, price controls threats are not going away anytime soon.

A sample, non-exhaustive, list would include companies like Trimeris (TRMS), Intermune (ITMN), Pharmion (PHRM), Diversa (DVSA) etc.

I own Trimeris and Intermune stock.


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