No. 1 Fidelity Biotech Fund Survives Trials

TheStreet.com Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

The big news for health care is not all on Capitol Hill.

Health-care and biotechnology mutual funds have outperformed all other industries, rising an average of 3.9% last month. Funds focused on the sector made the most of investors' interest in drug and hospital stocks. The top-performing health or biotechnology fund, Fidelity Advisor Biotechnology ( FBTAX), gained 8.6%, excluding a sales fee of 5.75% and other expenses. Managed by Rajiv Kaul, the fund increased another 1.5% in the past week.

Average Sector Fund Performance in June
Sector
1 Month Average Return %
Health/Biotechnology
3.93
Utilities
2.63
Tech/Communications
2.06
Financial Services
-1.06
Real Estate
-1.82
Energy/Natural Res
-6.72
Precious Metals
-10.79
Source: TheStreet.com Ratings
Data as of most recent month-end

The Fidelity Advisor Biotechnology Fund is rated A, or "buy," and is loaded with big names such as Amgen ( AMGN), which jumped 11% over the past week; Gilead Sciences ( GILD), up 8.7% in June; and Celgene ( CELG), up 13% last month.

Managers earn their pay in picking lesser-known drug-development companies with the potential to double or triple in value. If the timing is right, he or she identifies companies that have yet to turn profitable or ring in successful clinical-trial results.

This Fidelity fund found such a company by buying a small position in Jazz Pharmaceuticals ( JAZZ). Jazz Pharmaceuticals is one of the best-performing stocks in recent days, soaring 55% and holding on to a 270% return for June. Nearly all of the gain came on June 10 on a report anticipating the company would send its fibromyalgia treatment, sodium oxybate JZP-6, to the Food and Drug Administration for approval upon completion of Phase III trials.

One important question to answer when selecting drug stocks: "What's in the pipeline?" For Jazz Pharmaceuticals, its restless-leg-syndrome drug, Ropinirole, made it to Phase II trials on July 13. While that treatment is still in testing, the company already sells Xyrem to keep patients with narcolepsy and cataplexy awake during the daytime, and Luvox CR for obsessive-compulsive and social-anxiety disorders.

The other important question: "Will this biotech company run out of money before turning a profit?" Earlier this month, Jazz Pharmaceuticals caught up on late interest payments and brought in another $7 million in a private placement of equity and warrants.

The Fidelity Advisor Biotechnology Fund also holds small positions in Antigenics ( AGEN) and Savient Pharmaceuticals ( SVNT), up 186% and 118%, respectively, in June. Antigenics has a Phase III study going for a malaria vaccine and a Phase II trial to treat high-grade gliomas. The FDA advisory panel voted in favor of Savient's gout treatment in mid-June.

Honorable mentions go to Rydex Series-Biotechnology ( RYCFX), up 8.1% in June, and the JennDry Jennison Health Sciences A ( PHLAX), up 6.3%.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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