A Good Start for Biotech, Two Weeks in a Row

by: Centient Biotech Investor

Biotech made it two-for-two last week, rising higher for the second week in a row. The Centient Biotech 200™ climbed 89 points to 4078, a gain of 2.2%. Added to the 66 point increase of the week before, biotech is up almost 4% after the first two weeks of the year. And the CBT 200™ is within 10 points of its all-time high of 4088, which was set last February.

Last year, biotech moved up to 4073 in January, then established a slightly higher peak of 4088 in late February. But that was the extent of the upside movement, and biotech had to settle for a 1% loss in 2006. Maybe this year the 4088 level will not be a limit, but a springboard to higher levels.

Last week, individual biotech companies put the best face on their corporate progress and made their pitches to investors at the JPMorgan HealthCare Conference, events we covered on a day-by-day basis. Meanwhile, Genentech (DNA) was a perpetual-motion publicity machine, announcing knock-out earnings that beat already-high expectations, and making three separate deals to further augment their already impressive pipeline.
Breadth was extremely strong, even more positive that a 2.2% gain would imply. There were 159 biotech companies that moved higher, while only 54 companies headed south, a ratio of 2.9 advancing issues for every decliner. Among biotechs with big changes in value, the results were nothing short of a blowout. A full 23 biotech companies gained 10% or more, against just 3 companies that lost a double-digit percentage. That equates to 7.7 big winners for every big loser, an extremely strong number. The average share of a biotech company (taking away the market capitalization factor of the index) moved up 3.5% last week, showing that the small caps did even better than big cap biotech, and the big caps, after all, did quite well.

Oculus (OCLS) is scheduled next week to be the first biotech IPO of the new year - in fact the only IPO next week. The company makes Dermacyn Wound Care, a super-oxidized solution for moistening, lubricating, cleaning and debriding chronic wounds. The company is expecting to place 3.5 million shares in an $8-$12 range. The ipohome.com site lists investor interest in the deal as Warm, even though Oculus lowered the range from an originally announced $12-$14.

CytRx (NASDAQ:CYTR) was the biggest percentage gainer in the biotech sector last week, rising 36%. RXi Pharmaceuticals, a subsidiary of CytRx, signed a license with the U Mass Medical School for its RNAi research, including access to its nanotransporter technology. The latter will be used to deliver RNAi therapeutics to tissues. The deal is contingent upon RXi securing outside funding. CytRx climbed 65 cents to $2.45.

Telik (OTCQB:TELK) was a 35% winner. It took a 70% hit in late December when its lead cancer drug, Telcyta, failed three Phase III clinical trials. In the tests, either the trial was conducted poorly, contaminating the data, or the drug failed to provide a benefit. Last week, Telik was one of many presenters at the JPMorgan conference, and the presentation apparently had a positive effect on investor sentiment. Telik traded $1.57 higher to close at $6.05.

Seattle Genetics (NASDAQ:SGEN) gained 34%. The company partnered with Genentech [DNA] on an anti-cancer antibody that targets multiple myeloma and lymphoma. Seattle Genetics received $60 million upfront and could earn another $800 million in milestones. Almost overlooked because of the blockbuster Genentech deal, Seattle Genetics also partnered with Agensys to develop antibody-drug conjugate therapies for cancer. Seattle Genetics added on $1.82 to end at $7.11.

Immunomedics (NASDAQ:IMMU) moved 25% higher without releasing news. It moved up 91 cents to $4.53.

Genomic Health (NASDAQ:GHDX) rounds out the top 5 in biotech last week with a 24% gain. The company, which makes a genetic test that predicts the effectiveness of chemotherapy for breast cancer, announced that United Health would cover the costs for the test. We also noted that the company made a compelling presentation at the JPMorgan conference. Genomic Health shot $4.73 higher to $24.33.

Disclosure: Centient management holds a position in Genentech shares and does consulting work for Genentech.