SAN FRANCISCO - New year. New mood. New attitude.
JPMorgan biotech analysts said during Thursday afternoon's "Analysts Wrap-up" session that closed the firm's 21st annual health care conference that there was a marked difference in the atmosphere surrounding this year's gathering.
"Last year, my take at the conference was one of gloom and doom for both the market and the year to come," said David Molowa, who follows the large-cap biotech sector. "This year," he told his audience of investors in the Grand Ballroom of the Westin St. Francis Hotel, "my sense is that you all and the companies that presented here this week have cautious optimism" about investment and business prospects for 2003.
That measured optimism, which Molowa acknowledged is built in part on a base of lower expectations, "sets the stage for a stronger year for the biotech sector this year."
He cited three factors behind the more upbeat view:
• An expected re-acceleration of sales growth into the low to mid-20s, coming after the deceleration of such growth last year. "This should bring growth investors back into the sector," Molowa said.
• More new product approvals, which also should prod more investors to take a closer look at biotech stocks.
• More deals. "Clearly, the pendulum has swung in favor of biotech," Molowa said. "I think we may see more deals this year, with big pharma coming in and doing higher-premium deals."
For his stock picks this year, Molowa stuck with Amgen Inc., of Thousand Oaks, Calif., as his top choice, in addition to Cambridge, Mass.-based Biogen Inc.; Gilead Sciences Inc., of Foster City, Calif.; and Sunnyvale, Calif.-based Scios Inc., citing the latter in particular as "continuing its strong growth."
Maged Sjenouda, who follows mid- and small-cap biotechs, echoed Molowa's take on the clearly discernable mood of cautious optimism shared by conference attendees and presenters, but added, "I don't think the rising tide will lift all boats" in his part of the biotech sector.
His picks as stocks that will rise in 2003: The Medicines Co., of Parsippany, N.J.; Tarrytown, N.Y.-based Regeneron Pharmaceuticals Inc.; Celgene Corp., of Warren, N.J.; and San Diego-based Amylin Pharmaceuticals Inc. He added that he likes Versicor Inc., of Fremont, Calif., and ICOS Corp., of Bothell, Wash., as longer-term picks.
Fellow mid- and small-cap analyst Franklin Berger said the biotech sector reached a "tipping point" in the gloom of last year's trading, and predicted that 2003 will prove to be "the year that biotech shows how productive it can be."
Berger echoed Sienouda's picks of Celgene, which he described as "coming of age" as 2003 begins; The Medicines Co., with its AngioMax compound; and Regeneron.
Chris Shibutani, who follows small-cap life sciences tools companies, said there has been "tepid response" to investing in the sector, but cited two picks - Varian Medical Systems Inc., of Palo Alto, Calif., and Affymetrix Inc., of Santa Clara, Calif. He cited Varian's strong growth in oncology systems, in particular its systems for IMRT (intensity modulated radiation therapy).
Of Affymetrix, he said that company "has defined itself as the gold standard' in the DNA microarray market" with its GeneChip system for analyzing large amounts of genetic information in a small platform.
Analysts' picks in other sectors:
• Carl Seiden, large-cap pharma: Pfizer Inc., of New York, which he described as having "a very robust earnings growth outlook," and Wyeth, headquartered in Madison, N.J., saying "from the bottom up, they have a lot of underlying growth factors."
• Jeffrey Stevens, European pharma: Novartis AG, of Basel, Switzerland, and London-based GlaxoSmithKline plc.
• Corey Davis, specialty pharmaceuticals: Forest Laboratories Inc., of New York, in a repeat appearance from last year as his top pick; Biovail Corp., of Mississauga, Ontario, which he described as his "contrarian" pick, adding, "If they get it right, [the company's stock price] will double" over the next 12 months; and Sepracor Inc., of Marlborough, Mass., which he said "could have the next big story in the insomnia market," as well as other drugs in the pipeline that "I bet will make 2003 a turnaround year."
More than 265 companies presented at this year's JP Morgan gathering, which had attendance of more than 5,000 over its four-day run.