Is Biopharma A "Buy"?


Even though nearly every analyst this morning is saying Thursday's bloodbathwas an overreaction, investors are continuing to sell biopharma stocks in the early going Friday.

There are two main issues putting pressure on the stocks. For big pharma, investors are worried about President Obama's proposal to raise the rebates the companies would have to provide for popular drugs bought by Medicaid. And for big biotech, the fear is over the administration's roadmap for getting cheaper, generic versions of expensive, supposedly harder-to-reproduce biotech drugs on the market.

Most analysts believe generic biotech drugs are years away. And many say that the earnings impact of the increased rebates, if they become a reality, are not as big as investors seem to think they'll be for the drug companies.

Leerink Swann's Seamus Fernandez tells clients in a research note this morning, "We believe yesterday's stock price reaction across all of U.S. pharma is exaggerated...." For example, he says the earnings per share impact for Pfizer is less than a penny. Nevertheless, investors have already taken shares of PFE to yet another multi-year low of $12.30 this morning. The stock last closed at that level in September 1996. Leerink may trade in PFE, Bristol-Myers Squibb, Eli Lilly, Merck and Schering-Plough.


And in the biotech sector, Deutsche Bank's Mark Schoenebaum sent out a blitz note with the subject line, "Mean 2010 Biotech PE Is Now Under 15x !!" Translation: the sector's on sale. The double exclamation points are his emphasis.

But investors don't seem to be heeding his call. Celgene, Amgen,Gilead Sciences, Biogen Idec and even Genentech are all significantly lower Friday morning. DNA shares have fallen back below the $86.50 offer from Roche. We'll hear much more about that at the company's analyst-investor meeting on Monday in New York where I'll be reporting live. Genentech hastily moved up the date from near the end of the month so it could get its message out before the hostile tender offer expires in a couple weeks.

Questions? Comments?