Biotech Bull Market Enters The Bubblet Phase in Early 2014

(Published in Seeking Alpha on January 9)

Buyers Anticipating J.P. Morgan Conference: IBB up 3.79% YTD

Last week we started a series of articles that will follow key technical and fundamental  trends in the biotechnology bull market. Trend # 1 was performance of funds and ETFs and the “FAB Five” large caps:


All the above stocks are on our focus list except CELG.

Here are some valuation and revenue metrics for these five stocks. This chart will be updated after 2013 Revenues and earnings are announced. At that time we can make a better analysis of which large cap offers better value. Amgen is the most mature Company and Regeneron is the newcomer. However it should be noted that Onyx, acquired by Amgen had a relatively low P/S ratio of 10.

Company Ticker Price Market 2014 Rev P/S PEG B/Sh
Cap est
Amgen AMGN 118 87 19.6 4.44 1.96 28.8
Biogen Idec BIIB 290 69 8.3 8.3 2 34.3
Celgene CELG 168 69 7.44 9.3 2 14.3
Gilead GILD 74 113 14.4 7.8 1.3 7.1
Regeneron REGN 268 26 2.6 10.3 1.22 17.2

Our Key Trend #2 is performance of “Emerging Growth Stocks” in cancer therapy. These mid-cap stocks have been market leaders and are widely owned by institutional investors. They were up big in 2013 anticipating product approvals, sales growth or even a buyout. Our benchmark valuation is Onyx Pharmaceuticals which was acquired by Amgen (AMGN) for ~$10B. Onyx revenues were forecasted in the $900M range for 2014 so the Company was valued at about 10X sales. As valuations of biopharmaceutical stocks approach the $10B range  an acquisition becomes less likely because few large cap pharmas or biotechs can afford it. Even  a $5B market cap requires a blockbuster product  and meteoric sales growth. So our key assumption for Trend#2 is that mid-cap biopharmaceutical stocks in the $5-10B range are benchmarks for overall bull market momentum and ultimately pipeline value.

Here are metrics, stock performance and  pipeline overview for some “Emerging Growth Stocks” that have strong momentum.

Company Ticker Price Mark. 2013/’14 est P/S SE Cancer Disease Focus Ph.2,3 Market
6-Jan Cap$B Revenues $B 2014 $M Pipeline targets/technology
Biomarin BMRN 69.5 9.6 0.55 0.669 14.2 1,000 rare genetic disease cancers 2,1 4 products(enzymes)
Epizyme EPZM 36 1 0.06 0.06 17 ~100 oncogenes, NHL sarcomas 1,0 HMT inhibitor
Incyte INCY 55 8.4 0.35 0.50 16.8 29 myelofibrosis,pancreatic,solid tumors 11,1 ruxolitinab (JAK)
Medivation MDVN 68.6 6.9 0.25 0.425 11.8 73.6 prostate,breast 4,1 enzalutamide (TNBC)
Puma Bio PBYI 110 2.95 na na n/a 128 breast, NSCLC 3,1 neratinib (TKI) HER2
Pharmacyc PCYC 128 7.7 0.20 0.33 23.3 262 blood cancers 6,0 ibrutinib (BTK)
SeattleGen SGEN 41 4.9 0.26 0.29 16.4 226 ADCs for lymphom,solid tumors 5,4 brentuxamab (ADCs)
Onyx ONXX 125 9.14 0.634 0.876 8.7 n/a liver, kidney, colorectal 0,9 now Amgen
Clovis CLVS 58.7 1.8 na na n/a 133 ovarian/ breast cancers, NSCLC,DX 2 EGFR, PARP


Here is the 2013 stock performance and metrics for the same stocks. Pharmacyclics (PCYC) and Seattle Genetics (SGEN) are on our focus list.

Company Ticker Price Mark. 52 Week % Up 1 yr.
8-Jan Cap$B High
Biomarin BMRN 69.5 9.9 80.7 34
Epizyme EPZM 35.5 1 45.7 52
Incyte INCY 55 8.4 55.3 193 NH
Medivation MDVN 68.6 6.9 69.8 25 NH
Puma Bio PBYI 110 2.95 113 474 NH
Pharmacyclics PCYC 128 7.7 143 97
SeattleGenet SGEN 41 4.9 49 54
Onyx ONXX 125 9.14
Clovis CLVS 63.4 2.1 86 271

We caution anyone trying to fathom valuations of emerging biopharmaceutical stocks. As can be seen with Epizyme (EPZM), Puma (PBYI) and other “mid-caps”,  price to sales may not be a good metric in a momentum market . Many high fliers are off their Q4 highs proving that it can be difficult to predict FDA approval and revenues for a Phase 2 drug 4 years in advance.The sector is still strong in early January with ETFs and the Fidelity Select Biotechnology Fund (FBIOX)  hitting new highs, anticipating news and analysis from the J.P. Morgan Healthcare Conference on January 14. All of our portfolio picks are strong holds and we have added new stocks in the last 30 days.

Stay tuned.


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