Big Pharma Is Desperate for Product and Small Biotech Is the Answer

If a 30% year-to-date rally in the Biotech industry (BTK) has caught your eye but crimped your courage, it may be time to think again. That's because for all its short-term strength, the sexy corner of the otherwise stodgy Health Care sector (XLV) has really just regained lost ground, when in fact, a new cycle of innovation is just getting underway.

"I think we are beginning to see signs of life amongst biotechs, with new products coming to market that are gaining traction," says Marshall Gordon, health care analyst at Clear Bridge Advisors, a New York based asset manager with $55 billion in assets under management. "Innovation is a great way to get paid, in any market environment or regulatory environment."

Of course, the upside of biotech's innovation is paired with the downside of its legendary volatility, which is an inescapable side-effect for this business, as is the omnipresent opportunity (or threat) of being acquired, since Gordon agrees that every small biotech company is a potential target.

"If you look at the pharmaceutical industry today, they are desperate for products, and the way to get those is by buying biotech," he says.

To that extent, Gordon has flagged three small players that he thinks possess tremendous upside.

He says Onyx Pharmaceuticals (ONXX) is not being sufficiently credited for the potential ofCarfilzomib --a blood cancer treatment that is in Phase III clinical trials that he says has the potential to replace an existing $1 billion blockbuster. Shares of this $2.4 billion company have fallen about 13% this year, but he says they are a ''potential double'' as the market expands and the data matures.

Gordon also owns Human Genome Sciences (HGSI) --an $8 stock that was $30 about a year ago, but like Onyx, is being undervalued. He thinks its new Lupus drug, the first such treatment t0 gain FDA approval in the past 50 years, is bigger than most analysts expect and will deliver better than expected sales once doctors start using and seeing the results firsthand.

His final pick is red hot Pharmacyclics (PCYC) --a California-based oncology play that Gordon is currently stalking since the stock has gone from $5 to $30 in the past year. While admittedly looking for a "better entry point," Gordon says the recent gains only partly reflect the long term potential of this stock which he says could go to $60.

By Matt Nesto | Breakout – 3 hours ago

Related Quotes:

^BTK

 

1,414.052

 

6.73 (+0.48%)

XBI

 

81.71

 

0.43 (+0.53%)

XLV

 

37.72

 

-0.02 (-0.05%)

ONXX

 

39.00

 

1.15 (+3.04%)

HGSI

 

8.365

 

0.27 (+3.40%)

PCYC

 

28.81

 

0.34 (+1.19%)

0.34 (+1.19%)