JMP says select small-, mid-cap biotech stocks look promising

By E. Janene Geiss

Philadelphia, Jan. 18 - While a repeat performance of last year's success with large-cap biotech stocks is not likely in 2006, JMP Securities analysts said investors can expect good showings from selected small- and mid-cap biotechnology companies.

The big cap-weighted American Stock Exchange Biotech Index rose 25% last year. Already this year, the Nasdaq Biotech Index and the American Stock Exchange Biotech Index are both up 6%, reflecting expectations for a healthy slate of product launches, potential Food and Drug Administration approvals and pivotal clinical data converging with a more benign regulatory environment and favorable macroeconomic outlook, according to a JMP report released this week.

JMP analysts Charles C. Duncan and Adam Cutler said they believe these events and macroeconomic conditions could drive inflows into health care funds and increase demand for biotech stocks.

For the first quarter of 2006, JMP said it favors stocks with transforming product launches, upcoming clinical data and significant corporate partnering news.

The launch of 20 new products in the United States and newsflow from 80 drug candidates with upcoming phase 3 results or regulatory submissions should fuel the sector's upward momentum, the analysts said.

New FDA guidelines are expected soon, the report noted, on the preclinical and preliminary clinical testing of drugs. The guidelines are intended to encourage biotechnology and pharmaceutical companies to explore more possible treatments by facilitating faster and cheaper routes to generating early-stage clinical data, JMP said.

"This will be a boost for biotechs minding cash spend," the analysts said in the report.

JMP's top 10 biotech stock picks for 2006 include:

• Celgene Corp., rated market outperform, is expected to continue outperformance in the first quarter of this year with the highly anticipated launch of Revlimid to treat myelodysplastic syndrome;

• Cubist Pharmaceuticals, rated a strong buy, has a key catalyst in Cubicin's supplemental New Drug Application and is expected to drive profitability in 2006;

• NPS Pharmaceuticals, rated market outperform, is expected to receive approval for Preos with a broad label in the first quarter. JMP said it believes NPS has strong potential to be a candidate for acquisition by a large biotech or pharmaceutical suitor;

• Incyte, rated a strong buy, has a key catalyst as data is expected in the first quarter from phase 2a studies of Pfizer-partnered CCR2 inhibitors in rheumatoid arthritis and insulin-resistance. This is an important year for the advancement of Incyte's pipeline, JMP said;

• Dendreon Corp., rated market outperform, will have a transformative year, JMP said, with results from a phase 3 study of Provenge in the early-stage prostate cancer are expected in the first quarter. JMP said it recommends investors take advantage of the shares' compelling valuation ahead of upcoming milestones;

• NeoPharm, Inc., rated a strong buy, has key catalysts in the expected results from several clinical trials this year. The start of LEP-ETU comparator study in the first quarter, if positive, would bring a new value asset from the company's technology platform, JMP said;

• Anadys Pharmaceuticals, rated a strong buy, will receive momentum from phase 1b hepatitis C virus data for ANA975 this year and a partnership on ANA380 by mid-year followed by a phase 3 start in hepatitis B virus is expected. The company plans to file an Investigational New Drug application this year for oral TLR7 agonist for cancer;

• Acadia Pharmaceuticals, rated market outperform, will see top line results from phase 2 ACP-103 trial in Parkinson's patients in the first quarter of 2006, along with data from a phase 2 study in schizophrenia patients. High visibility of ACP-103 and ACP-104 in 2006 will continue to result in outperformance of the stock, JMP said;

• Cytokinetics, Inc., rated market outperform, will get a lift from clinical data in the first half of the year, which will increase conviction of the company's platform. Final data from a phase 2 ispinesib study in advanced breast cancer is expected, along with proof-of-concept data from CK-452 that will lend confidence to the cardiac program, JMP said; and

• Sangamo Biosciences, rated market outperform, will see share price appreciation from expected clinical milestones. This year will be transformative for the company, JMP said, with the first clinical data from its lead zinc-finger protein-based compound SB-509, the vascular endothelial growth factor candidate.

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