The biotechnology and pharmaceuticals sector has outperformed during the last six months due to more stability in the macroeconomic front, and the pricing of health care reform and austerity measures into equity prices, leading to fairly stable revenue and earnings bases, says Ian Somaiya, Managing Director and Senior Research Analyst at Piper Jaffray & Co.
“What hurt the group for the better part of 2010 and 2011 was the lack of certainty in terms of what the revenue numbers and earnings estimates would be. There were price concessions driven by austerity measures in Europe, and health care reform either wasn’t fully understood or reflected in models,” Somaiya said.
Somaiya points to Gilead Sciences (GILD) as a great stock to own in the biotechnology space. GILD currently has HIV and hepatitis C medications pending approval, and Somaiya says the price volatility in the stock is unwarranted because investors are not considering both franchises in their expectations.
“We have a lot of very positive news related to the company’s HIV franchise, potential approval for another combination HIV pill – the quad pill – and approval for Truvada for the prevention of HIV infection. We also have the potential realization of their hepatitis C portfolio, with Phase II data from a combination oral regimen, which should be in by the end of this year,” Somaiya said.
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