Despite inherent volatility in the biotech industry, analysts are observing an end to the exaggerated instability that characterized the sector for the past two years. As economic recovery takes hold in the U.S., capital markets are becoming more open to cash-intensive drug development companies, easing their access to capital.
“I think one of the reasons we are seeing some of the volatility end is the financing risk had gone up significantly, as you can imagine, during 2008 and 2009, based on the economic crisis that was going on globally,” said Matthew L. Kaplan, managing director of the equity research health care group at Ladenburg Thalmann. “We’ve seen the restrictive capital markets ease as these companies have been able to access capital, really starting since the second half of last year, when it started to become a little bit easier to access capital. In the last nine months or so, capital has become more available.”
Kaplan’s favorite names in the biotech space fall within the therapeutic category, specifically Antares Pharmaceuticals (AIS) and Keryx Biopharmaceuticals (KERX), along with United Therapeutics (UTHR), which is in the cardiovascular space.
“Building a portfolio is one way to invest within the space, which we would advocate,” Kaplan advises, emphasizing the importance of investing in a handful of stocks that collectively produce an attractive risk-return ratio. “For example, if a company doesn’t have a diversified pipeline, you have to build a diversified pipeline on your own as an investor by investing in a variety of companies and building a portfolio, and that’s one way you can mitigate your risk.”
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