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Investing in Biotech Companies

Written By Brian Hicks

Posted February 3, 2009

The next biotech boom is upon us…

But be warned, when biotech stocks start moving, there’s no stopping the run, which makes many of the undervalued, beaten down and cheap biotechs an immediate buy.

And considering that U.S. pharmaceutical companies stand to lose billions in revenue, to patent expirations, it’s no wonder that big pharma is on the prowl for acquisitions. Even Sanofi-Aventis is allegedly in talks about possible acquisitions, days after Pfizer’s $68 billion buyout of Wyeth.

Even analysts at Merrill Lynch believe, "There are multi-layers of M&A going on at the moment as the big pharma companies look for ways in which to get their share prices up—and these companies are deploying a wider range of strategies to do so than ever before." 

Even Carl Icahn is aware of the potential, boosting his stake in Amylin Pharmaceuticals.

And there are plenty more biotech companies "on the prowl."

This, for example, is just a partial list of patent expiring drugs and companies that may be looking for acquisition targets.


patent expirations


The Biotech Boom Potential

As a group, biotech stocks have staged extraordinary runs since 1993. And if you were in the right names at the right times, you would have done even better.

Look at the explosiveness of the group, using the Biotechnology Index (BTK).

  • In 1995, the Index traded at $75. By 2000, it had skyrocketed just north of $800.
  • And after a 63% pullback between 2000 and 2003, you had the opportunity to buy it on the cheap around $300 before it ran to $900.


BTK chart 020209


There’s no denying the explosiveness of those rallies… and we strongly believe the next one is upon us as we speak. 

But as we said above, once these stocks start moving, there’s no stopping the run. The BTK and XBI charts are proof of that.

Of course, after explosive, outrageous runs, we’ve seen our share of busts, too, with biotechs losing up to 50% of their value. But there’s no denying today’s run potential.

The time has come for the next explosive leg up thanks to today’s buyout potential.

Stay tuned to SC Trading Pit for ways to trade the trend.

Good Investing,

Ian L. Cooper