Biotech Sector Will See More Acquisitions, Specialized Drugs

Some believe biotechnology exchange traded funds [ETFs] are beginning another cycle of growth. A CEO of a research firm that focuses on biotech stocks provides his thoughts on what we may see in the biotech sector this year.

Minyanville asks, “What will be the dominant themes for the year? Which companies or sectors could be hot?”

David Miller, CEO and co-founder of Biotech Stock Research LLC, revealed his take on the outlook of biotechs and the impact the health-care reform will have on biotech companies in 2010:

• Continued strength in biotech sector. However, the health-care reform won’t be good for big pharma. Companies will have to produce more specialized products to maintain revenue streams. Generally speaking, the fundamentals favor biotechs.
• We will soon see more personalized medicine and fewer “blockbuster” drugs. Companies will start tailoring drugs to an individual’s genetic profile. More personalized drugs means greater potential revenues.
• Investors should know the development stage of biotech companies. A majority of market cap is not related to companies with products already out on the market but with companies still in the development stage. Investors need to see that there are good management teams that know what has to be done to market a potential product and that the company has done its pre-clinical / clinical trials.
• More biogenerics will be coming out as drug patents expire. However, this will push big biotech companies to produce better products and continue the trend of more acquisitions of smaller companies.

• First Trust Amex Biotechnology Fund (NYSEArca: FBT)

• SPDR S&P Biotech (NYSEArca: XBI)

• iShares NASDAQ Biotechnology (NYSEArca: IBB)

Max Chen contributed to this article.