Last month’s highlights
In August, the biotech sector was more or less flat in terms of performance. News flow in August is traditonally rather limited. A few companies reported their quarterly figures, but no very important medical conference took place this month.Genzyme announced plans to acquire Sangstat in a USD 600 m cash transaction. The initial market reaction was negative. However the Genzyme stock recovered later during the month based on the company’s guidance of the transaction being earnings accretive from 2005 onwards. Amilyn Pharmaceuticals and its partner Eli Lilly reported positive clinical trial data for Exenatide, which is the most advanced GLP-1 agonist in clinical trials used for the treatment of diabetes type II patients (about 92% of diabetics in USA). According to WHO estimates the number of patients with diabetes type ll will increase from 189 million today to 330 million in 2025. Major reasons for that are the modern life style and the aging of the population. Exenatide has the potential to lead to a fundamental change of the treatment for people with diabetes. The potential advantages vs. insulin include:
- very low risk of hypoglycemia due to glucose dependent action, meaning also that there might no need for daily glucose monitoring (vs. insulin)
- weight loss (vs. weight gain with insulin
However, we are still waiting for more details of the clinical trials and it remains to be seen whether the antibody formation has no effect on longer-term efficacy. The fund currently has an overweight position in Amilyn Pharmaceuticals.
Biotech sector: Performance
In August, the biotech sector (Amex Biotech Index "BTK" was -1.98%, Nasdaq Biotech Index "NBI" was +1.10%) outperformed the pharmaceutical sector (Amex Pharmaceutical Index "DRG" was -4.24%), but underperformed the general market (S&P500 was +1.79%), the small cap sector (Russell 2000 was +4.50%) and the technology sector (Morgan Stanley Tech Index "MSH" was +9.13%).
The best performing stock in the Nasdaq Biotech Index in August was Qiagen, which is slightly overweighted in the fund. Qiagen is a provider of enabling technologies and products for the separation and purification of nucleic acids. The company reported better than expected quarterly results.
The biggest loser in the Nasdaq Biotech Index was CV Therapeutics, in which the fund has no position. The shares tumbled early in August after the company said that the FDA cancelled a September meeting to discuss approval of the company´s first and most-anticipated product, chronic angina treatment Ranexa.
Outlook
The biotech industry is well capitalized, productive, enjoying consistent revenue growth and demand. More news flow on successful biotech drugs will continue to drive their use and revenue growth.
The biotech industry will continue to mature as more companies generate sales, build commercial infrastructure, and reach profitability.
With more than 800 products in clinical trial development, we expect many research breakthroughs in the next few years, particularly in the treatment of cancer & AIDS, in pioneering research tools, and in diagnostics.
We also see improvements in existing drugs using new delivery methodologies and devices. In the next 5-10 years, refinements and implementation of insights from the human genome sequence map will be another strong growth driver - especially to customize treatments to an individual patient. These new breakthroughs are already visible in clinical trials for cancer patients in which new biotech drugs extend life without poisoning the patient.
As we have already seen recently, we expect some further consolidation in this industry. As about half of all biotech companies have less than 2 years worth of cash, there is still room for more M&A activities. However, short-term volatility based on rumours and disappointing news flow for individual companies will always play a role in this industry. In the end, short-term gyrations make little impact on the promising long-term picture that is developing for the sector.
Should you have any questions concerning the above information or UBS Investment Funds in general, please contact our UBS Fund Infoline (+41 1 235 36 36) between 8:00 a.m. and 5.30 p.m.
