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J.P. Morgan Confab Focus Reminds Us Upside Remains In Biotech

NEW YORK (TheStreet) - Other than retail, biotechnology stocks have been front and center this week amidst the J.P. Morgan Healthcare conference, the big conference held in San Francisco each January where so many companies reveal important outlooks for the year and important pipeline updates. 

Historically, biotechnology stocks have outperformed during this conference week -- and we have seen broad-based strength from the group -- but more importantly, investors are provided with a reiteration of some of the strong themes that will dominate 2014.

2013 was a standout year for the biotechs, and the same themes are well positioned to continue to drive 2014. Let's take a closer look...

First, Intercept's (ICPT) big move last week and Chelsea Therapeutics (CHTP) this week are reminders that if you can make some room for speculation in your portfolio, it is worth it. And once you get the pop, lock in your profits.  For speculation, keep an eye out for some of the biotech IPOs that have strong partnerships and late-stage pipelines.  New issues for 2013 including Xencor (XNCR), Oncomed (OMED), and Epizyme (EPZM - Get Report) have posted very strong performance. 

Second, the "new pharma" names -- i.e. large biotech firms with multiple products and strong pipelines that are frequently talked about by Jim Cramer on Mad Money -- continue to be well positioned.  Celgene (CELG - Get Report) in cancer, Biogen (BIIB - Get Report) in multiple sclerosis, Gilead (GILD - Get Report) in Hep C and HIV, and Regeneron (REGN) primarily for macular degeneration.  Also, keep an eye out on the much-smaller Alkermes (ALKS), the delivery system play that is developing its own drugs in house. CEO Richard Pops has stated he wants to rise to the levels of behemoths like Celgene and they are working their way to those levels.

Third, orphan disease drug companies.  Remember, orphan diseases are those that are considered rare, affecting less than 200,000 people in the US or 0.05% of the population in Europe, for example. The FDA tends to go much easier on orphan drugs because there aren't any alternatives for people with these rare diseases.  And, once they are approved, the companies that make them can price them at sky-high levels (ie hundreds of thousands of dollars a year)... and the government provides them with development incentives.  Stalwarts in this group include Alexion (ALXN), which treats ultra-rare blood disorders, and Biomarin (BMRN), which specializes in enzyme replacement therapies.  Sarpeta Therapeutics (SRPT), which focuses on RNA-based therapies, has hit some stumbles this year but is still well positioned. NPS Pharma (NPSP), which treats short-bowel syndrome, just won't quit, rising to new highs after its latest sell-off. Vertex (VRTX), whose main driver is Cystic fibrosis, also remains well positioned.

Keep an eye out for small biotech companies with revolutionary technologies that could change the very nature of the pharma industry - names like Isis Pharma (ISIS), Alnylam Pharma (ALNY), and Sangamo Biosciences (SGMO).  These companies are focused on DNA and RNA based medicine.

Of course, cancer remains a key focus in the year ahead.  While Celgene remains teh best in the group, there are other key names to look at in the space.  First, Immunogen (IMGN). The stock has dropped on questions over the pipeline, given its royalty on its main drug is minimal, and it will be key to watch this one to see if it can recover. Seattle Genetics (SGEN) has one drug on the market with much in the pipeline. Of course, Onyx was recently acquired by Amgen (AMGN), a company eager to add growth-- as it has fallen behind the four large cap biotechs listed above--Celgene, Gilead, Biogen, and Regeneron.

Lastly, diagnostics remains key, particular as we work to reduce costs. In diagnostics, keep an eye out for Opko Health (OPK), Exact Sciences (EXAS) andTearLab (TEAR) which focuses on colon cancer screening.

I know what many will think -- look at the runs in these stocks! But they are still well positioned here for 2014 and it is worth starting positions on any macro-related pullbacks or short-term speed-bumps.

--Written by Nicole Urken in New York.

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