Cowen Lists Top 10 Potential Biotech Surprises Of 2015; Is an Old Fashioned Scandal in the Cards?
The Biotechnology Team at Cowen released their annual "Top 10 Potential Surprises" for 2015, which includes items that (1) underappreciated by the investment community, (2) have at least some chance of occurring during 2015, and (3) would be associated with significant stock price ramifications.
The Top 10 Potential Biotech Surprises Of 2015:
10. Gilead (NASDAQ: GILD) Is The Top Performing Large Cap
9. Biosimilars Take A Step Backward, Not Forward
8. Juxtapid Beats Consensus Estimates - Related Stock (NASDAQ: AEGR)
7. Biogen (NASDAQ: BIIB) Posts 2015 EPS >$20 Without Topline Upside
6. Antibody Drug Conjugates Don't Play Well With Immunotherapies - The two stocks likely to be impacted the most
would be Seattle Genetics (NASDAQ: SGEN) and ImmunoGen (NASDAQ: IMGN).
5. Dynavax (NASDAQ: DVAX) Emerges As An Immune-Oncology Company
4. An Old Fashioned Scandal Hits Biotech
3. A New Head Of FDA's Neuro Division Encourages Raptor (NASDAQ: RPTP) To File In Huntington's
2. Acorda's (NASDAQ: ACOR) rHIgM22 Shows Evidence Of Remyelination
1. A Long Time Cowen Analyst Retires
Possibly the funnest one from the list is 'An Old Fashioned Scandal Hits Biotech'. Commenting on why it is possible, the analyst team said:
It has been a long time since the biotech world has been rocked by a true scandal. Yes, we have read reports of bankers behaving badly, or companies being less than fully transparent in their disclosure. But to encounter true corporate malfeasance marked by SEC charges, insider trading, CEO jail time, or a lifetime ban from the industry, one needs to go back to 2000-2002 and the time of ImClone, InterMune, or TKT. Perhaps it is no coincidence that all three scandals took place the last time the biotech sector was red hot. We can think of several reasons why the risk of a scandal might be significantly higher in today's bullish environment.
(1) Management quality has been diluted. Biotech's success has engendered 100+ new public companies over the past two years, bringing with them many less experienced and potentially less well vetted managers. With increased headcount comes greater potential for a few bad apples.
(2) The incentive to "keep up with the Joneses" is powerful. With so much success going around the industry, management teams may feel greater pressure or temptation to cut corners or cheat in order to share in the rewards of success, rather than be viewed as one of a limited number of failures.
(3) Investors are less suspecting. The investment community is not only less critical in its thinking, but also is performing less due diligence on new ideas. Without this natural watchdog in place, it is our view that management teams have already become more aggressive about dredging their data and spinning their news. The line between "spin" and "fraud" is not well defined, raising the risk of an intentional or inadvertent crossing.
On the timing of the event, they quip "Hopefully after bonus time."
Commenting on the stock impact should this event come true, they said: Biotech valuations have benefited from an optimistic or "glass half full" view toward clinical data for some time. Skepticism is a powerful sentiment, and if it returns, it could cast a chill over the sector for a long time. It took 10 years for the NBI to recover from the broken confidence of 2000-2002
Disclosure: The author is long GILD.