"Given the overall sentiment of the market, we still like the returns over the next couple weeks, but as investors reallocate capital, we offer two different suggestions: 1) within biotech, Celgene's growth profile and Amgen's upcoming launch for denosumab may offer the industry's best returns; and 2) given our overall positive view of Genentech's growth profile, Avastin's opportunities, and our EU pharma analyst's (Andrew Baum) view that Roche is a compelling buy regardless of Avastin's success in adjuvant, we think Roche offers a good opportunity as well. We note though, that given Genentech's shareholder base, we expect a meaningful portion of DNA dollars to leave the industry."Lazard's Sendek believes it's also possible that some of the post-Genentech money will trickle down into the small- and mid-cap biotech groups. Here, he thinks the most attractive opportunies are those companies that are profitable, like OSI Pharmaceuticals ( OSIP), as well as companies with unpartnered drugs such as Acorda Therapeutics ( ACOR) and Cougar Biotechnology ( CGRB).
The biotech sector is moving into the post- Genentech ( DNA) era, so where will all the Genentech money go? Genentech's minority shareholders are in the process of tendering their shares to Roche at $95, which will ultimately free up $47 billon in investment capital that should be re-deployed elsewhere. The hope, at least amongst biotech investors looking for a spring rally, is that much of that money will stay in the family. The most immediate beneficiaries are likely to be the other big-cap biotech firms -- Amgen ( AMGN), Biogen Idec ( BIIB), Celgene ( CELG), Genzyme ( GENZ) and Gilead Sciences ( GILD). Credit Suisse's biotech analyst Michael Aberman notes that the cumulative market cap of the remaining large-cap biotech companies totals about $140 billion. "If only 50% of the DNA/Roche cash stays in U.S. large-cap biotech, it could lead to a fund flow tailwind of more than 15% of the U.S. large-cap group," Aberman says. If investors are seeking another biotech investment of similar size to Genentech, their choices are Amgen ($50 billion market cap) and Gilead Sciences ($40 billion market cap), says Lazard biotech analyst Joel Sendek. "Gilead is our top recommendation for new investment into large-cap biotech, given its high EPS
earnings per share growth rate and diverse pipeline of compounds, and discount price," says Sendek. Biotech investors are growth investors, almost by definition, which is why Genentech was so widely held. J.P. Morgan analyst Geoff Meacham believes that investors looking for a new biotech growth investment will probably park new money into Gilead Sciences and Celgene.
Then there is Morgan Stanley biotech analyst Steve Harr's view: