Sector Focus: Biotech

Last week was the start of the annual Bank of America Biotech conference held amidst the glitz and glamour of Las Vegas. After years of anticipation, new generations of biotech drugs have begun to show some promise. No doubt these drug pioneers will be heralded and the focus of much discussion during the event.

Since last March, the Dow Jones Biotech index has been on a tear, gaining 39% vs. 18% for the S&P 500. So the question remains, are biotech stocks mirroring the dot-com's we fell in love with a couple years ago, only to fall from grace so swift and suddenly? Could these companies actually hold the key that unlocks this cancer curing mystery that has confounded scientists for so many years? Or is this just another dose of 'irrational exuberance' soon to leave us with a bad taste in our mouths?

Let's have a look at three of the Biotech firms leading the cancer drug charge:

Most of ImClone's notoriety stems from Martha Stewart's alleged insider trading scandal and less from the actual science of its promising colon cancer drug "Erbitux". But throughout all the court hearings and media hype, ImClone's stock has recovered nicely after it failed to obtain a coveted FDA approval for the company's marquis drug Erbitux back in December of 2001. The reason for this sharp recovery (the stock traded as low as 5.24 back in September 2002) lays in the success of Erbitux's clinical trials. The drug is expected to receive quick FDA approval this time around. ImClone feels the drug will fetch annual sales anywhere from $300 million to $1 billion. Not bad for a company that has never turned a profit or unveiled a single product on the market.

Millennium first made history back in May when the FDA took only four months to review and subsequently approve the release of Velcade for patients with myeloma, a cancer of the blood. The four-month review was the fastest of any drug in FDA history. The initial market for Velcade is estimated at approximately $300 million. Although Velcade has only been approved to a small market, the potential for success in treating other types of cancers (such as, lung, prostate, and colorectal) is a potential blockbuster. Of course the key here phrase being "potential for success" and it should be noted that Millennium has yet to turn a profit and continues to burn cash in the race to cure cancer.

Back on May 19th Genentech made a huge announcement with regards to their phase III clinical trial results & most promising cancer drug, Avastin. The success in-patients with colon cancer who were administered the drug shocked the medical & investment community, resulting in a one-day gain of 45% for the share price. The trials showed that a combination of Avastin and chemotherapy extended the lives of patients with colon cancer by five months. Within a month of the news, the drug was granted "fast-track' status by the FDA and it is hoped will be widely available sometime in 2004. Estimates on Avastin's potential revenue stream for treating colon cancer range from $800 million to $1 billion. However, analysts have been all over the map in projecting sales, with estimates ranging from $500 million to $10 billion. Then again, the slightest hiccup in clinical trial results could cause to a massive sell-off and pound the stock back down to the pre-May 19 range.