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The Time Is Right for These Seven Biotechs

Incyte (INCY - Get Report) shares have been clobbered after the company took about $50 million in restructuring charges to shut down its Palo Alto facilities. But the company ended its June quarter with about $470 million in cash. That's an important number because it puts an effective floor under the stock near current levels (the company's market capitalization is closer to $500 million). The company is just now moving to clinical trials with its first significant drugs. Its HIV drug has advanced the furthest so far and is in phase II trials.

NPS Pharmaceuticals (NPSP) is showing signs of life with shares having nudged off the 52-week low of $16.48, about half the 52-week high of $36.61. The timing is just about right since the company is likely to release a bushel of news in the fall. Sensipar (or "Mimpara," as it is known in Europe) for treatment of secondary hyperparathyroidism is likely to get approved in Europe in the fourth quarter of 2004. NPS Pharmaceuticals will present new data on Preos, the company's osteoporosis drug, in an effort to widen the market for the drug in October. And the company is expected to see proof-of-concept results for its new migraine drug by the end of 2004.

Onyx Pharmaceuticals (ONXX) is valued at $1.3 billion by the stock market, way above its $240 million in cash and cash equivalents and an indication that the company is well along the path that Incyte is just beginning. The company's drug for advanced renal cell cancer is now in Phase III trials, and the company is talking with the FDA about filing for approval based on complete Phase II trials. In addition, Onyx is about to start new trials for its drug for malignant melanoma in early 2005.

Remember, even big-name biotech stocks aren't ones to fall in love with. They're highly volatile and subject to huge seasonal moves. Buy low and sell high is definitely the strategy here. And this season is the time to think about putting it to work.

Changes to Jubak's Picks

Buy Cell Genesys. This is a highly speculative pick. But when you're looking at the seasonal strength of the biotech sector in the fall and the kinds of worries that are bogging down drug stocks, speculative isn't a bad way to go. A small stock like Cell Genesys will get more pop from any move up in the sector than its bigger brethren. And because the company's leading drugs are still years from market, the stock price is driven by research news from the fall wave of medical conferences, not by worries over things like Medicare reimbursement.

Cell Genesys has a pipeline full of gene-therapy drug candidates for Alzheimer's disease, Parkinson's disease and Lou Gehrig's disease. But the nearer-term payoff comes from the company's GVAX line of cancer drug candidates. The first of those, for prostate cancer, is likely to hit the market in 2008, with drugs for lung and pancreatic cancer to follow by 2011. I'm adding the stock to Jubak's Picks with a February 2005 target price of $16 a share.


Please note that due to factors including low market capitalization and/or insufficient public float, we consider Cell Genesys to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Jim Jubak owned or controlled shares in none of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column. Email Jubak at jjmail@microsoft.com.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.

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