Doug
----
15) MEDICAL, BIO....2...........6/01...........(=)
Comment: Living up to our expectations, Biotechs continued to outpaced the market over the past few months. However, reflecting a trend in the broader market, leadership torch was passed from the large-cap industry leaders to second tier players suc as Human Genome (HGSI), Cephalon (CEPH), Idexx (IDXX) and Icos (ICOS). Meanwhile, large-caps have spent past couple months consolidating. Though valuations are rich, Briefing.com is maintaining its favorable rating on the group for the following reasons: strong product pipeline; more receptive regulatory environment; relatively strong financials (due to collaboration model); advancements in drug development methods which reduce cost and increase number of potential new therapies/drugs; and continued consolidation. Increased participation and improved technicals in the group leaders also suggest that the biotech sector is well positioned to continue outperforming market in the months to come. Basically, Briefing.com willing to ride out any near-term market related bumps in order to participate in the group's tremendous intermediate- to long-term growth opportunities. As such, we maintain our 2 rating.
Stocks:Amgen (AMGN), Biogen (BGEN), Centocor (CNTO), Cephalon (CEPH), Chiron (CHIR), Genzyme (GENZ), Human Genome Sciences (HGSI), Idexx (IDXX), Immunex (IMNX), Incyte Pharmaceuticals (INCY), Icos (ICOS), Isis Pharmaceuticals (ISIP), Liposome (LIPO), Myriad Genetics (MYGN), Scios Inc. (SCIO), Vical (VICL).
PHARMACEUTICAL....2...............5/25................(=)
Comment: Rising rates, difficult comparison periods and overextended technicals combining to undercut the drug stocks over past month. But despite the recent bout of weakness our view of the group has not changed and here's why. The average long-term projected growth rate for the major drug companies is an impressive 15.5%, or slightly better than 2x the rate estimated for the general market. Meanwhile, the group trades at roughly 30x projected earnings for the upcoming fiscal year or about 0.9x the market multiple. A steep price to be sure, but given the industry's earnings dependability and its price persistence, Briefing.com contends that drug stocks can trade as high as 175% to 200% of market rate without being excessively valued. This leaves significant room to the upside. One reason market confident group will continue to deliver solid double-digit growth is an impressive pipeline of new drugs. Bolstered by improvements in technology, recent trend toward collaboration (with smaller biotech companies), and routinely high levels of R&D spending, the outlook for new therapies is as good today as at any time in recent memory. According to the Pharmaceutical Research and Manufacturers Association (PhRMA), US drug companies now have more than 1,000 new medicines in development. More receptive regulatory environment also a major factor, as new drugs are brought to market sooner - reducing costs. Another development working in the group's favor over the longer-term is the aging of the population. Globally, the over-65 population is forecasted to rise from 380 million to over 690 mln by the year 2025 - according to a World Health Organization study. World population is not only getting older, but life expectancies are getting higher. These trends definitely bode well for the drug industry as the elderly account for a disproportionate percentage of health care expenditures. The outlook for the generic players is also promising. Price declines are slowing, a number of key branded drugs are due to lose patent protections over the next few years and more and more managed companies compel customers to use generics whenever available in efforts to keep costs down. While barriers of entry are obviously lower, thereby resulting in greater competition, major players such as Mylan (MYL) and Watson (WPI) are well positioned to exploit improved fundamental outlook. Overall, Briefing.com views setback as a (re)entry opportunity for long-term growth oriented investors.
Stocks: American Home Products (AHP), Bristol-Myers Squibb (BMY), Forest Labs (FRX), Glaxo-Wellcome (GLX), ICN Pharmaceuticals (ICN), Johnson & Johnson (JNJ), Eli Lilly (LLY), Merck (MRK), Mylan Labs (MYL), Pfizer (PFE), Schering Plough (SGP), Pharmicia & Upjohn (PNU), Warner-Lambert (WLA), Watson Pharmaceuticals (WPI).