For Subscribers

Get the complete article now!

TWST: Andrew, given how well the stocks have done, in general, what’s the upside over the next six to 12 months? How much more is there to go in these stocks?

Mr. Forman: While the fundamentals for the group should continue to be very strong, it’s difficult to make the case that the performance of our Specialty Pharma Index, which is up 75% so far in 2000, is going to repeat itself. That being said, there’s tremendous momentum in the space with many new investors, including new growth and mid-cap money. So even though few stocks remain undervalued, another 25% upside wouldn’t surprise me, which certainly beats the major indices this year. I think some of the comments that Ian and Alex made are probably accurate. What we’ve learned is that uncertainty creates fear, and with both candidates talking about the price of prescription drugs, making this an election issue has fanned the flames, creating more rotation than we might otherwise expect — this perfect storm phenomenon that I alluded to earlier. Once the election is over, what actually is implemented is likely to be less. I think you have to be selective about the stocks that you continue to own and you have to remember that the fundamentals for the generics and for many drug-delivery companies should be strong for several years. There is this step change in dollar volume of patent expirations, but to answer your question, much of what we expect from 2001 performances and in some cases even 2002 may be in the stock prices today. At least that’s what some of the valuations suggest to me.

TWST: Andrew, are there any other companies that you would like to highlight? They don’t necessarily have to be companies that investors should rush out to buy today, but they could be companies that investors should keep a watch on over the next six months, or maybe a year.

Mr. Forman: I agree that Mylan (NYSE:MYL) has been pointed out as attractive relative to the group, but I would also like to respond to the comments on IVAX (AMEX:IVX). Number one, Taxol is an injectable drug, and it’s sourced from yew trees, so there’s an inherent entry barrier as the raw material is in scarce supply. My point is that I think there will be limited generic competition, and that this could be a sustainable earnings engine for IVAX. The second comment is IVAX has emerged as really the number four generic company in terms of its pipeline, just behind Mylan. The third point is that IVAX has a really compelling brand business, mostly international, featuring a sexy respiratory delivery technology featuring budesonide, a product that will be available in the UK next year. So there are actually multiple dimensions to the story. I just wanted to point that out.

TWST: Andrew, a final word. What’s your overall message to investors looking at this sector?

Mr. Forman: Well, I think the message is that 2000 has been the year to bet on the underdog. The sentiment has been very strong, and I think will continue to be strong for this space. It’s hard to find stocks with sustainable earnings growth with such low-risk profiles. Remember, with few exceptions, specialty pharmaceuticals business models are predicated on making money from drugs that somebody else invented.