Recent anthrax attacks and the looming specter of bioterrorism is drawing increased attention to biotechnology firms pursuing classified counter-biowarfare work, but that doesn’t mean those firms are necessarily good investments, analysts said.
Many companies in pursuit of countering biological warfare are still in the early research stage and nobody knows whether their work will be even relevant to the kinds of toxins terrorists may try to use, said Sushant Kumar, analyst with Mehta Partners in New York, N.Y.
Anthrax has been the only scenario in recent weeks. News of the anthrax attacks, however, had led some investors to get “carried away” in terms of unwise investments, Kumar said.
Kumar wouldn’t give any company names, but said he’ll keep an eye on some firms whose stock price has gotten a boost as a result of bioterrorism.
James McCamant, editor of the Berkeley-based Medical Technology Stock Letter, recommends never buying a company’s stock when publicity is high.
“When the headlines go away, the stock goes down,” he said.
He prefers companies with strong fundamentals.
Among his favorites is Carlsbad-based Isis Pharmaceuticals Inc., which recently signed a $200 million deal with Indianapolis-based pharmaceutical giant Eli Lilly & Co.
Isis has also been in the headlines recently for its anti-biowarfare work. The firm’s Ibis Therapeutics unit won a $6.6 million government grant to detect biological agents. The stock has moved into the $20-range this month from the teens in September.
David Molowa, managing director equity research at JP Morgan H & Q; in New York City, is also advising investors to refrain from investing in companies just because they’re involved in counter-bioterror work. He urges them to judge firms on their fundamentals.
Biotechnology’s fundamentals are “very strong right now” with many companies exceeding earnings expectations, he said.
San Diego-based Idec Pharmaceuticals, for instance, reported a 55 percent increase in third-quarter net profit amid rising sales of its non-Hodgkin’s lymphoma drug Rituxan.
Third-quarter Rituxan sales rose to $205 million from $115.5 million a year ago and are likely to rise further, Molowa said. Molowa was also high on Invitrogen Corp., another local company that sells research kits to biotechnology and pharmaceutical firms.
The industry has broad support. In fact, Molowa said, biotechs have leveraged over the pharmaceutical industry at a time of political and economic uncertainty.
One good thing that came out of the bioterror events is that some vaccine and antibiotic makers could get a boost in terms of government funding, McCamant said.
BioPort Corp. in Lansing, Mich., is the only company in the United States licensed to make an anthrax vaccine. But the company has had significant troubles, ranging from flaws in the vaccine manufacturing process to the refusal of hundreds of military personnel to take the shot.
McCamant said technological advancements should lead to better vaccines in the future.
The government announced it is investigating ways to boost the nation’s vaccine supply for smallpox responding to the nation’s fears of such a terrorist attack.
But the old smallpox vaccine had such adverse side-effects that many people chose not to take it. In the late 1970s, vaccine makers actually stopped developing shots for children after a series of product liability lawsuits, according to published reports.
Congress responded with a law limiting liability for makers of pediatric vaccines.
The Biotechnology Industry Organization reportedly is working to extend such liability to vaccines for adults.
While bioterror may give the vaccine industry a boost, others have long been researching preventive medicines and detecting methods for bioterrorism, McCamant said.
“Bioterrorism isn’t a one time thing,” he said.
McCamant and other analysts point out it’s still not certain which systems will actually work in warding off a threat.
Nevertheless, since the anthrax attacks, several firms have seen their stock price jolted, McCamant said.
Among them is Cepheid, which makes a testing kit that can detect chemical and biological pathogens. But he said, Cepheid’s stock price is “way ahead of itself.”
San Diego-based Nanogen, which won a $1.5 million grant from the Army to make a miniature instrument to identify warfare in human blood samples, has also gotten a boost recently. The company’s stock price jumped 81.6 percent from $4.74 to $8.61 as of Oct. 12, but the system has yet to prove itself.
Further, Molowa said, investors should be leery of companies that are hoping to capitalize on the momentum.
“Some companies are opportunistic in putting out press releases related to contracts they have with the Department of Defense to boost their share price,” he said.
What matters are clinical advancements, partnership deals and strong fundamentals.
McCamant agreed, adding one thing is for certain, while “bioterrorism will be good for the industry, you can’t make money buying stock (in companies working on anti-bioterrorism) now.”
