) --Labor Day is over and Hurricane Earl is out to sea, which means Wall Street is returning to work in earnest for the last three months of the year.
To put everyone in the right mindset, I've compiled a "Back to School" guide covering the essential information biotech investors need to profit from what should be a very busy fall season.
Before we look ahead, take a quick look at the year to date. The Nasdaq Biotechnology Index (NBI), a market-cap weighted index of 125 stocks and the broadest measure of biotech sector performance, is essentially flat for the year compared to a 1% drop in the S&P 500 (see graph above).
The Amex Biotechnology Index (BTK), which equal weights 20 stocks, is up 18% for the year, although the acquisitions of index stocks
, plus the surge in
( GENZ) shares due to the
takeover speculation, have skewed the index higher.
The top-performing biotech/drug stock so far this year is
( SOMX), up 245% through Sept. 2. Somaxon's stellar performance comes despite a fall in the stock's value from $10 in March to $4 in September. Somaxon wins, however, because shares traded for just a buck in January.
Rounding out the top five stop biotech stock performers in 2010 to date are
( RPC) (up 192%),
(up 155%) and
(up 142%). (Stocks trading on the OTC or Pink Sheets were excluded.)
Large-cap biotech stocks (companies with market valuations greater than $5 billion) have largely under-performed this year to date. Genzyme is up 45%, again due to the Sanofi takeover business, while
is up 54% and
is up 17%.
The list of large-cap stocks in the red is longer, including
(down 7%) and
If we celebrate the winners, we must also acknowledge the losers in the biotech sector so far this year.
tops the list (down 88%), followed by
( MSHL) (down 88%),
(down 78%) and
The performance of the mid-cap biotech stocks is more mixed, with 20 stocks up for the year compared to 21 stocks in negative territory, according to data compiled by ISI Group.
The large- and mid-cap biotech stocks that have under-performed this year have done so largely because uncertainties over healthcare reform, drug price cuts in Europe and reimbursement pressures in the U.S. have hurt revenue and earnings growth, said ISI Group biotech analyst Mark Schoenebaum.
And to the extent that these trends continue in the midst of a U.S. economy still struggling to recover, biotech valuations measured by price-to-earnings multiples may continue to compress as they have for most of this year, added Schoenebaum.
The argument for better performance from the biotech sector through the end of the year starts with a pickup in mergers & acquisition activity. A Sanofi purchase of Genzyme, especially for a price in the high $70s, would help reinvigorate the old saw that Big Pharma needs to buy biotech companies in order to restock their depleted drug pipelines.
Big Pharma is sitting on piles of cash, which only adds more fuel to the speculative fervor around continued biotech M&A.
The biotech sector's performance will also pick up steam through the end of the year if the negative impacts from European drug price cuts and the U.S. healthcare reform are found to be less hurtful than expected, said Schoenebaum.
Biotech is very much driven by stock-specific catalysts like clinical trial results and FDA drug approvals, so a good showing for the last three months of the year will also hinge on the outcome of some key events.
Here is a list of the biotech events with the most potential impact for the remainder of 2010:
- The FDA advisory panel for Arena Pharmaceuticals'(ARNA) - Get Report obesity drug lorcaserin on Sept. 16.
- Amgen's results from a phase III study of denosumab in the prevention of prostate cancer.
- Genzyme's ongoing M&A dance with Sanofi.
- Presentation of hepatitis C drug data from Vertex Pharmaceuticals and Merck(MRK) - Get Report at the American Association for the Study of Liver Disease annual meeting in November.
- FDA's approval decision for Human Genome Sciences'( HGSI) lupus drug Benlysta on Dec. 9.
- Likewise, the FDA's expected approval decision on Oct. 22 for the diabetes drug Bydureon from Amylin Pharmaceuticals( AMLN), Eli Lilly(LLY) - Get Report and Alkermes(ALKS) - Get Report.
- Medicare's national coverage determination meeting for Dendreon's prostate cancer vaccine Provenge on Nov. 17.
I previously put together a list of
through the end of the year, so please check it out.
Here, too, is a list of
pending in 2010 and a
--Written by Adam Feuerstein in Boston.
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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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