BioMarin Pharmaceutical Inc.,Incyte Corporation Part Of Rally As Biotech Sector Booms, Says Cowen

November 3, 2014

By Riley McDermid, BioSpace.com Breaking News Sr. Editor

Biotech as a sector continues to remain white hot in the capital markets, but many investors are too focused on the “intangible value” inherent in many early stage candidates, which is a worrisome trend, said the biotechnology analyst team at Cowen and Co. on Monday.

In a note titled “Biotech Thermometer,” Cowen’s analysis looks at institutional investor sentiment toward the biotechnology sector, individual stocks and upcoming events. Cowen said that a rebound in the broader equity markets “coupled with a slate of strong third quarter earnings reports have driven the biotech sector to all-time highs” with the NASDAQ Biotech Index up 8 percent in October alone.

“Biotech's ability to deliver impressive earnings upside during what is typically a seasonally slow quarter has not been lost on generalist PMs. They have returned en masse to the sector, though their focus appears mostly confined to large and mid-cap stocks,” wrote the analysts.

“Meanwhile, even specialists appear somewhat caught off guard by biotech's impressive third quarter performance. Increasingly, they are of the view that any commercial stage biotech company (even Amgen!) has the ability to post impressive financials, and should not be shorted,” said the note.

Cowen said for now, large cap companies continue to command most of the interest from investors, though earnings-driven mid cap stocks (BioMarin Pharmaceutical Inc. , Incyte Corporation , Medivation, Inc. ) have also participated heavily in the run.

“Small cap stock performance remains much more idiosyncratic. Interest is confined to what are perceived to be the highest quality names and only those with nearer-term catalysts.

A healthy market for venture capital has caused a rash of initial public offerings in the biotech sector this fall, a trend that could become spottier as some companies pull out or decide not to run for the exit.

“Similarly, appetite for IPOs remains very selective, especially after multiple October offerings failed to deliver on aftermarket performance,” said Cowen. “We view investors' ability to differentiate and discriminate within biotech as a healthy sign. On the other hand, the ‘intangible’ value being attributed to platforms or early stage candidates has ramped up of late, a worrisome trend.”