The first quarter of 2011 has been kind to several biotechnology stocks. As pharmaceutical companies' patent cliff problems shifted into higher gear this year, biotechs often seemed a much more promising bet: Their biologic drugs command high prices, tend become blockbusters, and -- perhaps most important -- are in far less danger from generic competition.
So which companies were investors' favorites this quarter? Based on the data from Standard & Poor's Capital IQ division, these stocks have been the big biotech winners so far this year.
1. Vertex Pharmaceuticals (VRTX) topped the list with a 38.4% return as of Wednesday's close of $48.48. This $9.8 billion market cap non-profitable company is all promise. It is its pipeline that's drawing investors, especially the hepatitis C treatment telaprevir and potential cystic fibrosis drug VX-770.
Both diseases present large market opportunities: Liver disease caused by the hepatitis C virus affects 3.2 million individuals in the U.S. and as many as 100 million people worldwide. Cystic fibrosis is an inherited genetic disease that affects about 30,000 people in the U.S. and has few treatment options.
Analysts have favored the stock, with a consensus buy recommendation. However, just on Thursday, Vertex announced two more telaprevir study results that did not impress investors and the stock declined 2% to $47.50. Also, Vertex is not without competitors and is in a race with Merck (MRK) and its experimental Hep C drug boceprevir to be the first to reach the market.
The stock's 52-week high of $52.13 was set on March 7, up from a low of $31.25 set on July 1, 2010.
2. Regeneron Pharmaceuticals (REGN) also had an impressive quarter, soaring 36.1% to $44.68 as of Wednesday's close, after setting an intra-day 52-week high of $45.11. This $3.88 billion market cap biopharmaceutical company has been on a tear with a yearly return of 67% as it continued to develop cancer, eye-condition and gout treatments.
In fact, Regeneron, which sells only one product -- Arcalyst (rilonacept), for the treatment of a rare, inherited, inflammatory condition -- last month submitted an application to the Food and Drug Administration for its VEGF Trap-Eye for the treatment of the eye disorder that is the leading cause of blindness in patients older than 65 in the U.S. and Europe. If the treatment is approved, Regeneron hopes to take market share from Roche/Novartis's (NVS) Lucentis.
However, Regeneron's pipeline also suffered a setback recently. Aflibercept, its candidate drug for non-small-cell lung cancer -- a notoriously difficult-to-treat disease -- failed to increase overall survival time in a late-stage study. For now, analysts favor the stock with a consensus buy recommendation, but this setback follows others, making ongoing studies of aflibercept vital for Regeneron's future. The company co-developed aflibercept with Sanofi-Aventis (SNY).
3. Cephalon (CEPH) was, until Tuesday's close, the third-worst biotech performer in the S&P 1500, with a -4.8% return year-to-date, according to Capital IQ. All that changed late Tuesday, when Canadian company Valeant Pharmaceuticals (VRX) launched a hostile takeover of the company at $73 a share, valuing the company at $5.7 billion. Shares soared 28% and closed on Wednesday at $75.44 -- above the offer price -- to register a healthy 22.23% return year-to-date and boost its market cap to $5.72 billion.
Cephalon itself has actually been on a shopping spree. Just the day before Valeant's announcement, Cephalon said it was buying Australian oncology specialist ChemGenex Pharmaceuticals, and a week earlier, it announced the acquisition of private Canadian oncology specialist Gemin X Pharmaceuticals. Cephalon has been trying to address the pending loss of patent protection in 2012 for its blockbuster narcolepsy pill, Provigil, a lackluster pipeline, and the death of its founder and long-time CEO in December.
In general, analysts, who rate Cephalon a hold, believe Valeant's offer will not meet with much resistance, and that Cephalon, which lost 19% of its value in the prior 12 months, should accept the offer.
4. Gilead Sciences (GILD), the world's largest maker of HIV/AIDS drugs, closed Wednesday at $42.51, allowing this nearly $34 billion market cap biotech to record a return of 17.3% year-to-date. Gilead is slowly climbing back toward the 52-week high of $46.62 it set in April of last year, making its one-year return an unimpressive -6%. Analysts overall rate Gilead as a buy.
When Gilead reported its fourth-quarter profit dropped 22%, it also said the FDA hadn't accepted its market application for a new application of its blockbuster HIV treatment Truvada, a setback for the company's HIV drug franchise's growth prospects. For now, its HIV medicines are under patent protection, but they are already facing challenges, such as from generic 3TC, even as it continues its research in the field. Gilead has also been acquiring smaller companies to enhance its pipeline, and Thursday announced a cancer research collaboration with Yale University.
5. Cubist Pharmaceuticals (CBST) rounds out the top five best biotech performers in the S&P 1500, according to Capital IQ, with a 16.3% return year-to-date. The smaller company ($1.48 billion market cap) relies on its anti-bacterial drug Cubicin, used in hospitals for difficult-to-treat infections, including MRSA, for most of its revenue.
While the company's pipeline consists of other antibiotic potentials to address this unmet need area of severe infections, its revenue source is in jeopardy: Generic drugmaker Teva Phamaceutical (TEVA) is trying to enter the market.
What is Short Selling?
Make a profit when stocks prices fall.View Course »