What's in Store for Biotech Investors in the Second Half of 2012

This article is part of the Fool's  Halfway Through 2012  series, in which we review how sectors have done since January and see what's coming for the rest of the year. Click  here  to read all of the articles.

With second-quarter earnings season in full swing, it seems like a good time to take a quick look back at the first half of the year and look at what's upcoming for the biotech sector for the latter half of the year.

Lessons learned

  • Drugs can still launch successfully. After lackluster launches by Dendreon's Provenge and Human Genome Sciences' Benlysta it sure looked like "short the launch" was a no-lose investment thesis. But Vertex Pharmaceuticals and Regeneron Pharmaceuticals with Incivek and Eylea showed us that useful drugs still sell.
  • The FDA is reasonable. I never thought I'd utter those words, but after both Arena Pharmaceuticals (NAS: ARNA) and VIVUS (NAS: VVUS) got their less-than-perfect obesity drugs approved, anything seems possible.
  • Pharma is back in love with biotech. After a bit of consolidation -- Pfizer (NYS: PFE) and Wyeth, Merck and Schering-Plough -- pharmas are back to acquiring biotechs. Bristol-Myers Squibb bought Inhibitex and Amylin Pharmaceuticals; GlaxoSmithKline bought Human Genome Sciences.

Looking forward
In terms of FDA approval decisions, it's going to be hard to top the excitement of the obesity drugs from VIVUS and Arena, but the oral multiple sclerosis market will come close. Novartis' Gilenya has the market all to itself for now, but it has had trouble unseating the injected multiple sclerosis drugs because of potential side effects.

Sanofi's Aubagio and Biogen Idec's BG-12 are both up for FDA review before the end of the year. I like their chances, especially BG-12's, but don't expect an overnight change in prescription habits. Doctors will continue to stick with injectable drugs until they get comfortable with the risk-benefit profile of the oral medications.

Pfizer is also trying to use the convenience-factor angle to move in on entrenched leaders that require a needle to be delivered but in a different indication. Tofacitinib is up for approval of its oral rheumatoid arthritis drug next month. Again, unseating the megablockbusters won't be easy, but at least a small slice of the market will be meaningful.

Clinical trial results are the other major binary event for drugmakers, but their timing isn't as apparent to investors because there's a lot of variables in when the data is available: when the trial ends and how long it takes to compile the data being the most obvious.

Pfizer, Johnson & Johnson and Elan (NYS: ELN) have said to expect the second clinical trial for bapineuzumab later this summer. The first Alzheimer's trial was a complete failure, so I wouldn't expect much, but that also means a positive result will cause shares to skyrocket. Eli Lilly also has a phase 3 Alzheimer's drug that should read out shortly.

There's data from hepatitis C drugmakers expected in the second half of the year; it seems there's always hepatitis C data being released. The data I'm most interested in is from a trial looking at Gilead Sciences (NAS: GILD) GS-7977 and ribavarin for 24 weeks to see if that simple combo is enough to cure genotype 1 patients. If the trial works, Gilead won't need Bristol-Myers Squibb's daclatasvir, nor will it even have to combine GS-7977 with one of its own drugs.

There is bound to be more M&A in the second half of the year, but which companies and for how much remains to be seen. With very little in the pipeline and no marketing partners, VIVUS and Amarin seem ripe for the taking, but potential acquirers might just wait to see how the drugs perform before making a bid. Maybe they'll even partner, wait for a launch flop, and then pick up the company on the cheap; see GlaxoSmithKline's acquisition of Human Genome Sciences.

Onward and upward
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This article is part of the Fool's  Halfway Through 2012  series, in which we review how sectors have done since January and see what's coming for the rest of the year. Click  here  to read all of the articles.

The article What's in Store for Biotech Investors in the Second Half of 2012 originally appeared on Fool.com.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson and Dendreon. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, Pfizer, Vertex Pharmaceuticals, and Gilead Sciences. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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