What Now, Genentech Investors?
But Chan cautions that not all of the investment capital generated by Roche's buyout of Genentech will necessarily flow right back into biotech or health care. "Growth investors look for growth, and for some funds, that will mean looking outside of health care stocks," he says.
At current prices, Genentech makes up roughly 35% of the $277 billion in total market cap from the so-called "Big Six" profitable, large-cap biotech companies, which include Biogen Idec, Genzyme (GENZ) and Amgen (AMGN) as well as those mentioned above.
Genentech is the most widely held of the Big Six, so removing it from the list not only shrinks the sector considerably but also makes it less attractive to investors who owned Genentech because it was the "safe" way to gain biotech exposure.
"If the biotech sector's market cap shrinks by a big chunk, there is the possibility that general growth investors pay less attention to the sector," says a health care hedge fund manager.Mike King, senior biotech analyst at Rodman & Renshaw, also sees potential downside for the sector if Genentech ceases to be, because selling large institutional investors on the idea that Celgene, Gilead Sciences or Amgen can fill Genentech's shoes as the sector leader is going to be a hard sell. "It's going to be tough convincing generalists because no one but Genentech has the breadth and science and the know-how to translate science into breakthrough, blockbuster products," says King. Celgene, Gilead and the others are great companies, but they're more limited in scope, while Amgen is trying to diversify, but lacks the credibility of Genentech, he says.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV