It wasn't always pretty, but the biotechnology sector closed out 2004 on a positive note, with some good momentum running into 2005. The Amex Biotechnology Index closed at 549.69 Tuesday, up more than 11% for the year, besting returns of the three major market indices. The Nasdaq Biotechnology Index, a broader measure of biotech sector returns because it includes more small- and mid-cap stocks, finished at 774, up a less robust 5.8%. Big-cap biotech stocks, by and large, were stronger performers than their small-cap brethren this year, which partly explains the divergent performances of the sector's two major indices. Biotech stocks with market caps in excess of $1 billion turned in positive returns this year, while biotechs with sub-$500 million market valuations posted negative returns, according to Banc of America Securities.
The continued successful development and approval of new targeted biotech drugs for life-threatening diseases like cancer has been a real boon for patients. But these medical advances often work for only a small subset of patients, and they don't come cheap. Yet prices for these new targeted therapies are sky-high with no letup in sight, which begs the question: Who pays and for how long? In December, President Bush moved Michael Leavitt, his Environmental Protection Agency chief, over to run the U.S. Department of Health and Human Services. Presumably, one of Leavitt's first jobs will be to help Bush pick a new commissioner of the Food and Drug Administration. With the FDA under the gun recently for its role in monitoring drug safety in the wake of the Vioxx withdrawal, Bush's choice for a new FDA chief will draw close scrutiny. The success or failure of new drug launches will be an early 2005 focus for investors. Two big drugs to watch here include Tysabri, the new multiple sclerosis drug from Biogen Idec and Elan Pharmaceuticals ( ELN), and Tarceva, the non-small-cell lung cancer drug marketed by OSI Pharmaceuticals ( OSIP) and Genentech. We'll get a fair share of important and market-moving clinical data in 2005. Among the stocks (and drugs) to watch: Genentech and Avastin data in non-small-cell lung cancer; Cell Therapeutics' ( CTIC) Xyotax in non-small-cell lung cancer; Axonyx ( AXYX) and Phenserine in Alzheimer's; Celgene's ( CELG) Revlimid in MDS and multiple myeloma; Onyx Pharmaceutical's ( ONXX) BAY 43-9006 in renal cell cancer; Telik's ( TELK) Telcyta in ovarian and lung cancer; CV Therapeutics' ( CVTX) Ranexa in angina; and possibly Northfield Laboratories' ( NFLD) blood substitute Polyheme. The following companies are among those with important FDA approval decisions on the docket for 2005: American Pharmaceutical Partners ( APPX), Amylin Pharmaceuticals ( AMLN), NitroMed ( NTMD), Neurocrine BioSciences ( NBIX), Adolor ( ADLR) and SuperGen ( SUPG).