Biotech Stocks To Soar In 2014!
The biotech sector delivered huge gains for investors in 2013. Yes, the Nasdaq Composite’s 40% increase last year was impressive. But the 65% gain in the Nasdaq Biotechnology Index was truly outstanding!
No question about it, 2013 was a banner year for biotech stocks.
And the good news is… the sector is poised to continue its red hot run in 2014. Let’s take a closer look at a few reasons why biotechs should add to last year’s big gains in the coming year.
First off, the FDA is likely to continue its recent trend of being friendlier to biotechs by approving a large number of new drugs.
In 2012, the agency appeared to soften its hard-line stance to new medicines by approving 39 new medicines. That’s the highest number of drugs approved in a single year by the FDA in 15 years. As Ron Cohen, CEO of Acorda Therapeutics (NASDAQ: ACOR), recently pointed out in a Bloomberg interview…
“The regulatory environment has shifted to being somewhat more accommodating than it was before.”
Now, the biotech bears will point out that the FDA only approved 27 new drugs in 2013, a 30% drop compared to 2012. However, I don’t see that as a sign the FDA is becoming stingier with new drug approvals.
According to a recent interview the Boston Globe did with Glen Giovanetti, Ernst & Young’s Global Life Sciences leader, the number of drug approvals last year merely reverted to the average of 28 approvals annually over the past five years. As Mr. Giovanetti told the Boston Globe…
“The number was down last year but it could go back up in 2014. I’m not reading too much into it.”
Based on the views of these two industry experts, I think it’s very likely the FDA will continue with its friendlier approach to new drug applications and approve somewhere around 28 new drugs this year.
Another reason why biotech stocks should perform well in 2014 is the implementation of the Affordable Care Act (Obamacare).
Starting this year, the new federal healthcare legislation makes it mandatory for most US citizens to have health insurance. According to the Congressional Budget Office, the number of previously uninsured Americans who will gain health insurance coverage because of the Act is around 30 million.
That’s a ton of people who probably weren’t spending much on healthcare and prescription drugs in the past. As these 30 million people obtain health insurance, they are sure to drive up spending on prescription drugs.
Of course, greater spending on prescription drugs means higher sales for drug companies and biotechs.
Last but not least, biotech stocks should get a boost from what is shaping up to be a robust year for mergers and acquisitions in the sector.
It’s no secret that the patents for a number of top-selling drugs are set to expire over the next few years. While large drug companies are still trying to develop new drugs in-house, they’re also looking to refill their product pipelines by acquiring biotech companies with promising drugs in development.
For example, Bloomberg recently reported that both Merck (NYSE: MRK) and Bristol Myers Squibb (NYSE: BMY) plan to get aggressive in the mergers and acquisitions area this year. Bristol Myers has $6.3 billion in cash and Merck a whopping $18.3 billion to pursue their deal-making agendas.
What’s more, a couple of companies have already completed huge deals this year.
Last week, General Electric (NYSE: GE) agreed to pay around $1 billion for the medical equipment business of Thermo Fisher Scientific (NYSE: TMO). And Forest Laboratories (NYSE: FRX) said it will acquire Aptalis Pharma for $2.9 billion.
There’s no question that many larger drug firms are hoping to copy the success of Gilead Pharmaceuticals (NASDAQ: GILD).
Gilead acquired Pharmassett in November 2011 for a jaw-dropping $11 billion. While that’s a huge price tag to be sure, Gilead’s stock price has almost tripled in value since the deal was announced. And the company’s market cap has increased by roughly $85 billion as a result.
Furthermore, the drug Gilead sought to get its hands on through the acquisition was approved by the FDA in December. This new drug for chronic hepatitis C infection, Sovaldi, is expected to produce $2.5 billion in sales for Gilead this year alone.
As you can see, there are several persuasive reasons why the biotech sector should follow up last year’s big gains with more of the same in 2014. Don’t miss out on the huge potential gains in this exciting sector.
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Profitably Yours,
Robert Morris
Category: Penny Stocks
