It's not insanity. I am talking about these biotech moves we are seeing of late, including today's amazing run in the newly public Axovant (AXON). It's not insane because, for whatever reason, the older-line pharmaceutical companies seem congenitally incapable of developing huge drugs, while these new companies seem to do it as a matter of course.
Just think about this week. Now, you may believe Regeneron (REGN) had a "bad" panel discussion about its new anti-cholesterol formulation and that's why the stock's down from $540 to $500.
But the fact is, this drug stands a tremendous chance to be worth multiple billions of dollars because the test results prove pretty conclusively that this different approach Regeneron is trying could be the way to augment current statins to do better and help people who can't tolerate the current statins to get that cholesterol down.
Yes, there were some people on the panel who questioned how broadly the drug should be taken, but it was approved by a 13-3 vote and there is little to no doubt that this drug will be on the market fairly shortly. Sure, there is a competitive drug. It's made by Amgen (AMGN). I say may the best biotech man win.
Let's not, however, lose the forest through the trees. Pfizer (PFE) has the greatest-selling statin of all time, Lipitor. But it's not the one that has come up with the alternative. Merck (MRK) invented the class of statins, but it isn't the one either.
No, it's little Regeneron in the lead and, when you think of it like that, you know the biotech move isn't insane.
How about Gilead (GILD)? Remember when that company's stock did nothing for months as people fretted about whether health maintenance organizations and pharmacy benefit managers would squeeze its margins because it was charging too much for its hepatitis C cure? That they would send more business to the somewhat inferior AbbVie's (ABBV) formulation?
In the last month and a half, this stock has gone from $100 to $119 because the drug's too good for these managers not to offer and because Gilead's cash is stockpiling to the point where it can do a transformative acquisition.
Or I should say, another transformative acquisition, because in reality, the reason why it is in a position to do a big deal, why it has all that cash, is that it was willing to pay $11 billion for a money-losing company called Pharmasset, which the scientists at Gilead correctly gauged has a real winner. Gilead paid an 89% premium for the stock from the day before, a bid so pre-emptive that no old-line pharma company even dared to take an interest. And it was willing to take a 9% hit to its stock, another thing that no big-dog pharma would normally be willing to do.
I say normally because AbbVie, desperate to replace soon-to-be-lost revenues from another incredible drug, Humira, was willing to pay $21 billion for Pharmacyclics (PCYC) in cash and stock. That did knock AbbVie's stock back big, but it has since recovered and now exceeds where it was because investors are beginning to understand the value of the biotech that AbbVie bought, even though most people had never heard of it until about a year before the bid.
This is the same reason why Receptos (RCPT) is up so huge this week. We have been hearing rumors all week that both Teva (TEVA) and AstraZeneca (AZN) want Receptos. Why not? It has a pipeline of formulations that could work against ulcerative colitis, MS and Crohn's disease. That's $10 billion worth of drugs easily for, say, $8 billion, which might be enough to get the $6 billion Receptos after this run.
I feel the same way about Radius Health (RDUS) and Alder Biopharmaceuticals (ALDR) for bone density and migraines. Given the paucity of drugs that the old pharma companies have, I wonder how these two can even stay public to where they can develop what very well could be the next Pharmasset, Regeneron or Pharmacyclics.
In other words, not only are these gains not insane. They are the definition of sanity. That's why I keep featuring them and writing about them and talking about them. They are the answer for the stale old companies with good balance sheets but little to no growth and seemingly fallow research labs. Therefore they -- or at least one of them -- should be your answer, too.