5) Time for a Biotech Reassessment

Is it time for this sector too cool off a bit after a strong run up? Drug development and sales is key in determining the rise and fall of an individual biotech stock, but JP Morgan is taking "a more cautious view" on performance in the overall sector for 2012. Given that these stocks got a jumpstart at the beginning of the year, JP Morgan says, it is "less willing to broadly chase the sector at current levels.''

The companies getting moved to Neutral from Overweight are Amgen ( AMGN), ViroPharma ( VPHM) and Acorda ( ACOR). Meanwhile, JP Morgan recommends putting profits into Gilead Sciences ( GILD) or Celgene ( CELG) in the large-cap sector, or InterMune ( ITMN), Medivation ( MDVN) or Alexion ( ALXN)in the mid-cap sector.

Biotech stocks on the Nasdaq are up 8.3% so far this year, while the New York Stock Exchange's biotechnology index BTK is up 13.8%. Among the factors that have boosted the broader market are Bristol-Meyers Squibb's ( BMY) acquisition of Inhibitex ( INHX) and drug launches by Dendreon ( DNDN) and Regeneron Pharmaceuticals ( REGN).

Amgen shares, up 25% in the last two months, have beaten both the S&P 500 index and the broader biotech gains on the Nasdaq. While JP Morgan raised its December 2012 price target on Amgen to $75 from $70 a share, it says that the stock isn't compelling right now.

"A restructuring or an increase in the payout ratio seems unlikely near term with the new management team," writes the analysts. "We don't think there are a lot of efficiency gains to be made going forward, especially with Amgen's consistent focus on innovation." The firm's management team is expected to be in place by mid-year.

ViroPharm and Acorda, similarly, have outperformed the broader sector recently, and may have limited upside. ViroPharm shares have already seen a run up after the company announced late 2011 that its exclusivity on Vancocin had been extended for three years. A sustained rally in Acorda stocks is uncertain given that it may already reflect the market's optimism toward the company's key drug labels and trials. "With the initial patient backlog now fully cleared for Ampyra, and a focus today more on a DTC type of commercial effect, we see more slow and steady market share gains ahead for Ampyra rather than an inflection point," writes JP Morgan.

-- Written by Chao Deng in New York.

>To contact the writer of this article, click here: Chao Deng.

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