Don't Lump Biotechs With Big Pharma

Litigation risk, generic competition and pipeline problems are causing investors to just say no to large-cap drug stocks. But should they also steer clear of biotech companies for the same reasons?

As demonstrated last week when Merck(MRK Quote) shares were stung after a judge ruled its first federal Vioxx case a mistrial, large-cap pharmaceutical companies can be stuck trading according to outside factors rather than earnings potential.

But don't lump biotechs in with the big boys just because they both peddle drugs, says Stephan Patten, manager of the $20 million (QBPAX Quote)Quaker Biotech Pharma-Healthcare fund. Patten says the challenges facing big-cap pharma won't rub off on biotechs, which he says don't face the same threat from juries, or, for that matter, generic drugs. And biotechs are gaining strength in the merger world, as evidenced by Amgen's (AMGN Quote) agreement last week to buy Abgenix (ABGX Quote) in a $2.2 billion deal, though buyouts aren't necessarily one of Patten's reasons for investing. ...