Senior Analyst Sees A Consistent And Investable Trend In Antibody Technology Stocks M And A Deals
April 7, 2010 - The Wall Street Transcript has just published Biotechnology & Pharmaceuticals Report offering a timely review of the Pharmaceuticals sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Dr. Jason Kantor, Ph.D., joined RBC Capital Markets in 2005 as a Managing Director and Senior Biotechnology Equity Research Analyst. Previously he was a Managing Director and Senior Biotechnology Analyst at WR Hambrecht + Co. from 2002 to 2005, and Vice President in Equity Research at JPMorgan Chase & Co. from 1998 to 2002. In 2004 Fortune magazine ranked Dr. Kantor as an "All-Star Analyst," and The Wall Street Journal ranked him second in its "Best on the Street" survey. Dr. Kantor received his B.A. cum laude in biology from the University of California, San Diego, and his Ph.D. in cell and developmental biology from Harvard University.
TWST: You mentioned the small- and mid-cap M And A rally. Would you talk about that for a minute?
Dr. Kantor: What I mean by that is in 2009 we saw Medarex and Genentech (DNA) taken out; we've already seen OSI Pharmaceuticals (OSIP) in play in the past weeks, and we've seen Facet (FACT), which was originally a target for Biogen (BIIB), ultimately getting taken out by Abbott (ABT) at a significant premium to where the Biogen deal was proposed. What we are seeing is a number of small- to mid-cap companies and, in some cases, large companies that are the targets of acquisition. Whenever that's the case and whenever you see companies paying 40%, 50%, 60% or more premium, you begin to see the other companies with similar profiles reflecting increased valuation.
TWST: Who are your top picks right now and why?
Dr. Kantor: Our 2010 pick on the large-cap side is Celgene and on the small- to mid-cap side is Seattle Genetics, another pure-play antibody company with a deep pipeline of proprietary and partnered antibodies. And then I would add to that list, if you have a slightly longer time horizon, Cubist (CBST), which has proprietary antibiotics, which they sell directly with over $500 million in annual sales and growing. And we view this as the value play based on its low price-to-sales ratio.
TWST: When you are weighing companies, what do you look at? What are the most important factors for you?
Dr. Kantor: They need to have drugs. Whether they are early stage or late stage, they need to have good drugs that meet unmet medical needs, that have good patent life, that have high margins and that have very good growth prospects. Every successful biotech company has been built around a drug - in some cases one drug, in other cases more than one drug - but I think that's the one defining component in biotech, is you got to bet on the winning drugs.
TWST: What about trends in this sector? Will 2010 differ substantially from 2009 for the sector?
Dr. Kantor: Obviously there are no clear delineations along calendar years. Everything is a continuum. What I would say is that we've been focused for many years in the area of antibodies and antibody technology. I think it's been a fruitful area for M And A and for deals. I still think it's going to continue to be a great area for the development of new drugs. So I won't say that's a new trend, but I think it's a consistent trend and more importantly an investable trend.
TWST: Are there advantages to biotechs that develop therapies for orphan diseases?
Dr. Kantor: There are certain advantages of developing drugs against orphan diseases. One, you get additional exclusivity for your drug, which means that you can fend off potential generic competitions for longer. You also, in many cases, can demand much higher prices. And for very serious orphan diseases that are life threatening, there may be a lower hurdle from a safety perspective and a clinical data perspective relative to larger markets, such as diabetes or hypertension, where there is plenty of competition and a very, very high safety hurdle.
TWST: Is this a sector investors should be invested in?
Dr. Kantor: It's very attractive to the individual investor because there are so many stories of fabulous returns, but I would definitely be cautious in that respect because there are very few sectors that have the kind of volatility that we see here. For every winner, there is usually more than one loser. I think it's exciting, it's vibrant, everybody can relate, people have family members and friends with diseases, and can relate to these treatments and potentially cures in some cases. But it is definitely a sector that is fraught with danger.
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