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5 Biotech Stocks To Watch In '09

Posted: Dec 30, 2008 09:49 AM by Ben McClure

Tickers in this Article: GENZ, CELG, GILD, AMGN, DNA

Where are the healthy bets in this sick economy? Take a peek at biotech stocks. Despite the sectors’ reputation for risk and volatility, these days they are acting like safe havens. The biotech sector has held up remarkably well and investors can expect much of that success to continue into 2009. Within the sector, large cap biotech players are arguably the safest place to park your money. Here are five compelling opportunities to consider:

Amgen (Nasdaq:AMGN)
Amgen has suffered its fair share of problems, including clinical trial setbacks and safety concerns surrounding its Aranesp and Epogen drugs. But now it looks like the company is recovering, investment in R&D has more than doubled the size of Amgen's pipeline. In 2001, Amgen had about 20 molecules in the pipeline. Today there are more than 50. Shares of Amgen trade at a premium to the S&P 500, but they have come down considerably this year. (To help make sure you are picking the right stocks, see Chasing Down Biotech Zombie Stocks.)

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Celgene (Nasdaq:CELG)
It’s hard not to like Celgene. Its blockbuster drug Revlimid, which delays the onset of deadly diseases such as leprosy and multiple myeloma cancer, holds multi-billion dollar potential. Approved by the FDA in 2005, it has many good years of patent protection ahead of it. The company is generating phenomenal revenue and earnings growth. Indeed, the stock offers a whopping 83% compound annual growth rate through 2010. A number like that gives investors good reason for taking a closer look at Celgene.

Genentech (Nasdaq:DNA)
Numerous catalysts could push shares in biotech’s 800-pound gorilla upward in 2009. Successful late-stage trials are moving potential blockbuster drug Avastin closer to full approval by the FDA. What’s more, 2009 could be the year when Genentech agrees to a takeover by Swiss drug giant Roche. Genentech continues to push for a price above $89. A successful deal would please investors who get in now.

Genzyme Sciences (Nasdaq:GENZ)
Genzyme’s pipeline is stuffed full of potential products, including a pediatric leukemia drug called Clolar, an oral Gaucher's disease treatment and Myozyme for Pompe disease. While costly, Genzyme's $1.4 billion partnership deal with Osiris Therapeutics (Nasdaq:OSIR) gives Genzyme potential exposure to therapies that use stem cells to treat cancers, inflammatory diseases and joint damage. Genzyme management reckons it can achieve compound average earnings growth of 20% per annum on its existing product lineup. If more of its pipeline drugs are successful, the numbers will be even higher.

Gilead Sciences (Nasdaq:GILD)
Gilead Sciences dominates the treatment of HIV and AIDS. As routine HIV testing takes hold around the world, it doesn’t take a big leap to expect sharp growth for Gilead’s AIDS drug Truvada, which combines Gilead's other AIDS drugs Viread and Emtriva in a single pill. Going forward, Gilead sees its future in hepatitis C drugs, and most of its research budget is directed at treating liver disease. The stock trades at a premium to other biotechs, but with its foothold in huge markets the stock offers generous returns for investors willing to pay up. (For further reading, see The Ups And Downs Of Biotechnology.)

Conclusion
If your portfolio is starting to lag, these companies might be the right prescription for a pick-me-up. As in all stock suggestions, make sure to do your own due diligence to make sure these stocks match your risk profile, and that they don't result in a bad reaction.

By Ben McClure

Ben McClure is director of McClure & Co., an independent research consultancy. Before founding McClure & Co., Ben was a highly-rated European equities analyst at London-based Old Mutual Securities. He also spent several years as a business/technology journalist at the Economist Group. McClure graduated from the University of Alberta School of Business with an MBA.

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