AVANT: A Biotech With Heart
AVANT: A Biotech With Heart
By Hal Plotkin
CNBC.com Silicon Valley Correspondent
What if you could take a pill that magically turns your “bad” LDL cholesterol into “good” HDL cholesterol?
If you were one of the estimated 10 million Americans who suffer from arteriosclerosis, you’d probably race right over to the neighborhood pharmacy.
Your ailing heart might get an even bigger lift, however, if you had bought stock in the company that developed the new pills back when it was still selling for less than $10 a share.
That’s the medicine that the bulls on AVANT Immunotherapeutics Inc. {AVAN} are prescribing. Is it snake oil? Even the bulls acknowledge that there are risks. But leading biotech analysts say the low-priced stock makes AVANT a standout in what now seems to be an over-heated sector. Compared with battered semiconductor and Internet cousins in the Nasdaq, biotechs have had a great year. Even now, the American Stock Exchange Biotech index is off less than 10% from its March high.
Analysts cite several reasons for the sustained interest in biotechs, including the steady drumbeat of news about scientific and clinical research progress, worries about the future prospects of other market sectors, and the increasing role that new pharmaceutical compounds play in everyday life.
One-year comparison chart
One-year comparison of the Biotech Index {BTK.X} with the Philadelphia Stock Exchange Technology Index {PSE.X} and Philadelphia Semiconductor Index {SOX.X}.
But recent disappointments at several of the largest biotech firms, including Amgen Inc. {AMGN}, Chiron Corp. {CHIR}, and Biogen Inc. {BGEN}, illustrate the risks associated with betting on the biggest, most popular, most highly valued names. All three stocks came under pressure recently after each of those firms announced that previous growth projections for some of their most important new compounds might have been too optimistic. The announcements hit Amgen and Chiron’s stocks particularly hard.
“We’ve got some good stocks that have already been discovered by Wall Street,” says Jim McCamant, publisher of the Medical Technology Stock Letter, based in Berkeley, California. “That makes them pretty volatile, especially whenever we get some unexpected news.”
McCamant has one of the best biotech stock-picking track records in the industry. As of September 28, his model biotech portfolio was up 158 percent for the year, as compared with a decrease of 5.8 percent for the Dow Jones Industrial average. His aggressive portfolio has fared even better so far this year, up fully 234 percent since January 1. Taking a longer-term view, McCamant’s model portfolio is up 746 percent since its inception in 1987, as compared with an increase in the Dow of 453 percent over that same time period.
So what’s he saying now?
McCamant says investors should pay very close attention to current biotech valuation levels, particularly among the big-name players. “These kinds of valuations and market caps make me want to look elsewhere for a stock that’s going to move up sharply,” he says.
That’s why McCamant is sticking with the prediction he made in September that tabbed two lesser-known biotech firms, ICOS Corp. {ICOS} and Imclone Systems Inc. {IMCL}, as among his favorite stock picks for the coming year.
Which brings us back to AVANT Immunotherapeutics. McCamant adds this issue to his list of biotechs that could be a great play for investors who can stomach some risk.
He and other analysts say that if everything goes right over the next year or two, and we’re talking a non-trivial “if” here, AVANT’s stock could turn in an even more impressive performance than Pfizer Inc.’s {PFE} stock did after that company and its partners won approval to start selling the cholesterol lowering drug Lipitor back in 1996.
“If they make it with their new drug it’s going to be a huge, huge market,” he says. “The statins [Lipitor-like drugs] are already a $5 billion dollar worldwide market so the potential upside is really large.”
Earlier this week Dain Rauscher Wessels analyst Todd R. Nelson, Ph.D., reiterated his “strong-buy-speculative” rating on AVANT’s stock along with his $20 12-18 month price target.
“We anticipate profitability during 2004 and significantly higher earnings growth in 2005 and beyond,” he wrote, adding that he expects there will be more news about AVANT’s research and clinical progress before too long.
Although the company has several other drugs that are farther along the development curve, AVANT’s biggest potential blockbuster, its cholesterol transforming drug, is still in the first stage of new drug development, called Phase I, with Phase II trials expected to commence before the end of this year.
The possibility those trials won’t deliver the hoped for results create uncertainty that leaves other experts expressing caution.
“Companies in the earlier stages of testing could be promising,” says Alfred Mansour, Ph.D., chairman and CEO of BiotechWatch.com, an online service based in Franklin, Michigan that tracks the progress of biotech firms. “But you’ve got to think of it as an attrition problem. Maybe 50 percent of products in Phase I go on to the next stage of testing, then, maybe at best, less than 70 percent of the Phase II trials go on. The further you go the better your chances,” he says.
“Given the early stage of clinical development for [AVANT’s] products, there is comparatively little clinical evidence for efficacy,” he adds. “The products would require several years before reaching the market.”
But like Dain Raushcer Wessels’ analyst Nelson, McCamant says AVANT’s stock could get moving as early as the second half of next year if the company’s progress stays on track.
“It’s not sure thing,” he agrees. “But if it works, it’s going to be a blockbuster.”
