Leonard Yaffe | January 23, 2018
- Pharmaceutical stocks, especially the mid and small caps, have acted well since the beginning of the year. This has been driven primarily by proposed acquisitions at significant premiums.
- The biopharmaceutical stocks entered 2018 conservatively valued, and prospects for drug development in several disease states, especially oncology, were not fully appreciated.
- As I have written for several months, this remains a great time to buy stocks in this sector. Cancer immunotherapy is in its infancy, and there are promising compounds elsewhere.
- Although a “one time” event, the severe 2017-2018 US flu period should draw interest to several companies. Widespread flu activity is being reported by 49 states.
I reiterate my investment theme regarding the attractiveness of the pharmaceutical sector and the expectation for continued consolidation involving significant premiums being paid. The latter point reflects the need for the larger companies to augment their pipeline, and to specifically become more involved in oncology. Additionally, promising compounds are advancing in clinical trials in hepatology, nephrology and immunology, yet the valuations being accorded the stocks of the relevant companies is conservative in many cases. As I stated for some time, one can find small and micro cap drug stocks that are priced for “non success”. In fact, the NASDAQ Biotech ETF (IBB) is trading at the level at which it exited 2015.
Finally, although a “one time event”, the current flu period is especially severe, with widespread activity in 49 states. I would expect this unfortunate occurrence, which relates to the flu strain, to positively impact the first quarter earnings of many companies, including Perrigo (PRGO), CVS Health (CVS), Johnson and Johnson (JNJ), Pfizer (PFE) and Becton Dickinson (NYSE:BDX). Additionally, it may focus attention on a microcap situation, BiondVax (BVXV), which will enter Phase 3 clinical trials later this year with a universal flu vaccine. If successful, its candidate, M-001, would address the shortcomings of current vaccines.