Biotech Boom: Drugs Are Recession-Proof

Institutional money has been pouring into the biotech sector, as biotech stocks enter the third quarter surprisingly strong.

Take the Rydex Biotech Fund, for example. In 2000, the fund had about $1.4 billion invested. Then, over the following eight years, biotech stocks floundered, stripping the Fund of about 95% of assets.

But over the last few weeks, assets have just about doubled in the Fund, as Wall Street comes back. They know the next biotech boom is upon us.

But the move comes as no surprise to us.

Drugs are recession proof. They have no exposure to subprime and housing concerns. No matter what happens in the economy, people still buy medication. Period, said Brian Hicks in November 2007.

Hicks, you may remember, has been calling for the return of biotechs since November 30, 2007, catching the biotech bull-run before it began.

How could you not see the boom coming?

Hicks knew that as the baby boomer generation rushes into old age, like a colony of army rats, healthcare spending is expected to skyrocket. And all this spending represents a boom for drug and medical device developers and manufacturers.

So the recent boom isn’t a big surprise.

Take Intuitive Surgical [[isrg]], for example. This company makes the robotic da Vinci surgical systems for use in urologic, cardiothoracic, gynecologic, and general surgeries.

Sales at ISRG have gone from $26 million in 2000 to over $524 million today.

The stock is up about 4,500% since the start of 2003!

And with baby boomers getting surgeries in record numbers, medical device companies like Intuitive Surgical are going to continue to do quite well.

But it won’t just be companies that make surgical lasers and robots that’ll profit from this trend. Drug companies stand to make a fortune as baby boomers get older and need more healthcare.

Take a look at some of the returns posted by biotech stocks:

• Amgen……………+59,000%
• Gilead Sciences….+3,500%
• Biogen IDEC……..+2,329%
• Celgene…………..+9,030%
• IDEXX Labs………+3,300%

And There’s still time to Buy Biotech

After scouring the biotech industry looking for the next Amgen or the next Genentech… Hicks discovered 2008 favorite Anavex (AVXL.OB).

As we said on June 14:

More than 5.2 million Americans have Alzheimer’s disease. Another 7.7 million Americans will suffer with it by 2030, and another 16 million will suffer by 2050. And there’s a yearly price tag of $148 billion to treat these patients.

No one is quite sure what causes the disease that gradually robs sufferers of memory and the ability to care for one self. There’s no known cure, and current drugs are only temporary pain relievers.

So wouldn’t it be nice if the drug companies got it right?

Hopes are already mounting that an experimental drug from Elan and Wyeth can do the trick. If they can clear out deposits called amyloid plaque, or simply halt the production, they could help millions of patients, and potentially see annual sales of $13 billion.

But such theories of anti-amyloid could be based largely on “theory and hope,” says University of Southern California psychiatrist Lon Schneider (as quoted by Forbes). “None of the drugs have shown evidence of efficacy yet. Geneticist John Hardy, one of the first to finger amyloid as a suspect, puts the odds at 50-50 that one of the antiamyloid drugs will work.”

Plus, says the Forbes report, people that can function normally also have large amounts of amyloid-beta plaque, which casts doubt on whether the plaque is a cause, a consequence, or simply an indication of an aging brain.

While there’s some hope that Elan and Wyeth can help millions of sufferers, and in the end reap millions for shareholders, some drug developers are turning to the theory of oxidative stress, which damages and destroys cells and is believed to be a primary cause of Alzheimer’s disease.

According to PharmaLive.com, ‘Involvement of Oxidative Stress in Alzheimer’s Disease’ study leader Dr. Nunomura “pointed to extensive evidence of mechanistic and chronological links between oxidative stress and a number of key characteristics of the disease.”

The research also suggested that amyloid beta could be produced by the body as it tries to fight the disease, later turning into an accumulating toxic substance. In other words, there’s a belief that if amyloid was removed during early stages of the disease, it could do more harm.

Alzheimer’s Drug Stock: Anavex Life Sciences

The company’s drug candidate, ANAVEX 1-41, uses sigma receptors to stand guard against oxidative stress and repair cells. And when AV-1-41 goes into Phase I trials, we fully expect the market to re-rate the company upwards to $10 to $12 a share.

The drug is already showing promise in early stages. And in some trials, the drug reportedly provided neurons with protection from oxidative stress, prevented amyloid beta from becoming toxic, and reduced memory deficit in animal tests.

We continue to rate Anavex stock as one of our favorite small cap investments for 2008-2009. And the fact that the stock hasn’t sold off - especially during the recent market turmoil - speaks volumes.

Better, we wouldn’t be shocked if Anavex was a buyout candidate.

One, the company is betting that compounds for Alzheimer’s disease based on its Sigmaceptor platforms will provide it with competitive advantages. Its Anavex 1-41 treatment has demonstrated that the compound “significantly” protects neurons by preventing oxidative stress, which can damage and destroy cells and is strongly believed to be a main cause of many neurodegenerative diseases.

In short, if drugs like Anavex’s can slow or prevent diseases like Alzheimer’s there’s no telling how many buyout offers would flood Anavex offices.

Plus, they’ve got another 11 sigma receptor compounds in pre-clinical development, three of which could soon file for investigational new drug applications this year alone. This includes treatments for epilepsy, colorectal cancer and other solid tumors.

Anavex 7-1037 (for colorectal cancers) preclinical trial treatments, for example, shows a 69% reduction (with minimal adverse effects) in tumor growth.

Two, big pharmaceutical companies may not continue overlooking companies with oxidative stress exposure. And three, the Alzheimer’s drug market could triple to $9 billion by 2017. Why wouldn’t big pharma want a piece of that?

Subscribe by RSS Subscribe by Email