Biotechnology's solid second quarter a harbinger, Anadys one to watch, JMP Securities report says

By Jennifer Chiou

New York, Aug. 15 - The biotechnology sector's strong second-quarter showing bodes well for the second half of the year, according to JMP Securities analyst Adam Cutler.

During the three months, the industry saw stock prices rebound from a weaker first quarter, which Cutler believes will boost it during the second half of 2005.

The AMEX Biotech Index climbed 15% in the second quarter and has risen 13% for the year thus far, while the Nasdaq Biotech Index gained 6% during the quarter and is down 1% year to date, the report said.

Cutler noted the Nasdaq Biotech Index is showing signs of an upward trend and said investors should focus on small- and mid-cap biotech companies, including Anadys Pharmaceuticals, Cubist Pharmaceuticals and Oscient Pharmaceuticals.

JMP recommends Anadys as a strong buy with a $17.00 price target. Anadys is developing hepatitis B and C drugs, including ANA975, for which it signed a $20 million upfront deal that has $550 million in prospective milestone payments.

Cutler also recommended Cubist and Oscient as strong buys with price targets of $21.00 and $6.00, respectively.

JMP highlighted Cubist's IV antibiotic Cubicin and its steadily growing sales in the infectious disease community. The drug was approved for the treatment of complicated skin and skin structure infections in September 2003, the report said, and positive results from the drug's Phase III study could push sales as high as $500 million from the $250 million to $350 million previously expected by JPM.

In September 2004, Oscient launched Factive, an antibiotic for the treatment of community-acquired pneumonia. Cutler said the company will likely seek a co-promotion partner for the drug.

Looking ahead at the performance of the sector as a whole, the JMP analyst added that momentum from large-cap enthusiasm is expected to trickle down to small- and mid-cap biotechs, in part due to an increase in merger and acquisition deals, which were up 46% in the first half of 2005 compared to the same period in 2004.

Cutler noted Pfizer's $1.9 billion acquisition of Vicuron and Shire Pharmaceuticals' acquisition of Transkaryotic Therapies for $1.6 billion.

JMP also picked Incyte as a strong buy with a $12.00 target price and chose InterMune, $17.00 target price, and Rigel Pharmaceuticals, $25.00 target price, to outperform the market.

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