Big Pharma Emerges From the Wilderness

 | Nov 22, 2013 | 11:40 AM EST
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The four horsemen of the big pharma apocalypse are back, and they are flying. For weeks now Biogen Idec (BIIB), Celgene (CELG), Gilead (GILD) and Regeneron (REGN) have drifted lower. The stocks have been under heavy pressure from an economy that looked like it was accelerating, which caused people to want to sell recession-proof stocks, and from an overheating of the biotech initial public offering market, which had gotten out of hand.

As a long-term believer in this group, I'm accustomed to the periodic swoons, and I thought it was a terrific opportunity to pick some up. Now that judgment is being validated, and it isn't too late to add to positions.

Here's why.

First, we know that the Federal Reserve is still very worried about U.S. economic weakness, and that it will fight to keep interest rates lower. At the same time, the consumer is strapped, as we know from the retail reports we have seen. In that deflationary, tepid kind of economy, money gravitates to whatever can grow fastest. So the subpar growth has put a wind at the back of this group.

Second, we are getting a host of end-of-the-year approvals for products, particularly in Europe. Consider that, in the last 24 hours, we have seen a ton of good news. First, Gilead got approval from a key European medical agency that supports its marketing of a pill for chronic hepatitis C, a hugely problematic chronic disease. That, plus some strength in the company's important HIV franchise, is causing some analysts to boost numbers for this giant, which many thought would slumber into 2014.

Celgene just got a European panel approval for the sale of a drug called Abraxane to be used in combating pancreatic cancer. There had been plenty of skeptics about Abraxane. Now the skeptics are being proven wrong. That approval, along with some negative chatter about Amgen's (AMGN) Kyrpoli -- including rumblings about toxicity problems -- has put some pep into Celgene's stock. The shares had previously stalled for a bit in the $150s. Now the stock is breaking out into new highs.

Still, Celgene remains cheaper than all of the other biotechs I follow, because I think the company can earn $15 a share in 2017. Yep, it's cheaper than Pfizer (PFE), cheaper than Eli Lilly (LLY) and cheaper than Merck (MRK) on the outyears.

Then there's the biggest winner of them all today, Biogen Idec. This stock, which jumped 20 points before the opening bell even rang, has gotten a nod from a European committee for its novel Tecfidera pill against multiple sclerosis. Biotech's a funny animal. I don't know anyone who is close to this group who didn't think this approval would come -- yet, as is so often the case, such news can still prompt buying. Perhaps the upside action came from some short sellers who thought the group, after starting so strong, had run out of gas.

Finally, Regeneron just got approval to market Eylea for macular edema in Japan. That development will continue the company's endless beating and raising of its guidance. Don't forget that Regeneron has a new anti-cholesterol drug that can be used for all who can't tolerate traditional statin treatment. There's a new medical mandate to reduce bad cholesterol for everyone, which is precisely what Regeneron's drug is meant to do. So this could be a huge spur to 2014 sales if Regeneron gets what I think will be an expected approval. Remember -- as we've seen in Biogen today, expected approvals can still give you nice bumps in these stocks.

The big pharma group has been wandering in the wilderness. That stay looks to be over. I would buy all four of these, even after these runs, because these stocks are going to be anointed as go-to names for the rest of 2013.

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