Biotech's Growth Spurt Continues?
Biotech's Growth Spurt Continues?

Biotech's Growth Spurt Continues?
Despite the sector's rally, it may still have room to rise as S&P expects a strong slew of new product and supplemental approvals in 2006


In the run-up to this quarter's earnings reporting season, biotechs have been on a tear (the relative strength price chart for Standard & Poor's 1500 Biotechnology subindustry index is shown below). Year to date through July 15, the sector has surged 11.7%, compared to a 2.5% rise in the S&P Composite 1500 index. During 2004, this group gained 8.2%, vs. a 10% advance for the "1500."

Those are some impressive numbers, but such an advance can leave investors wondering if any upside potential is left for the group. Frank DiLorenzo, the S&P equity analyst who follows biotechs, thinks there may be some room to move higher. He recently raised his fundamental outlook on the biotech industry to positive, from neutral, based on S&P's expectations for a strong showing of new product and supplemental approvals in 2006.

AGGRESSIVE STANCE. DiLorenzo expects the flow of new products to provide a catalyst for the group and looks for industrywide share-price gains of about 20% over the next 12 months. Initial second-quarter results have been solid, in his view, and he expects this trend to continue for the second half of 2005.

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