Choose Carefully in this Huge New Drugs Sector

08/02/2011 12:30 pm EST

Focus: STOCKS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

Certainly the name “biosimilars” doesn’t get your heart pounding, but in the next few years it promises to be one of the fastest growing sectors in the drug industry…but choose your companies wisely, writes Ian Wyatt of SmallCapInvestor.com.

A couple of weeks ago, I reluctantly wrote two articles about the inevitable boom in the biosimilar industry. I say reluctantly, because it’s kind of a boring topic—and most people probably don’t even know the meaning of the word "biosimilar".

[Biosimilars or Follow-on biologics are terms used to describe officially-approved subsequent versions of innovator biopharmaceutical products made by a different sponsor following patent and exclusivity expiry on the innovator product.]

But I introduced biosimilars anyway, then followed up that article a couple of days later with a discussion of a few small-cap stocks that should benefit from new laws. And, to my surprise, the response from readers was overwhelming.

The e-mails came as a result of my article on Friday, where I mentioned Spectrum Pharmaceuticals (SPPI) as one way to take advantage of the upcoming movement in biosimilars.

Many of you had insightful comments about the industry, so I’d like to publish, and discuss, a few for the benefit of the rest of our readers.

I received an onslaught of e-mails touting a small company by the name of Viropro (VPRO). Here are a few of the comments:

  • "Surprising that you did not mention Viropro, the company that entered into the Biosimilar Rituxan agreement with Spectrum. They are the driving force behind Spectrum’s Biosimilar strategy. They are the only company in the world focused exclusively on the development of Biosimilars and have far and away the most advanced technology in the space."
  • "Viropro’s award winning business plan (British Airways competition) is being executed to perfection. For those seeking a stock with extreme upside, Viropro could be apropos for your portfolio."
  • "VPRO has been positioning itself to be a major player in the upcoming biosimilar boom. The company recently completed the acquisition of Alpha Biologics, inclusive of a biosimilar manufacturing facility located in Malaysia. This is ground floor territory for VPRO, a company which has been rather quietly getting its ducks in a row since signing their agreement with Spectrum. For anyone interested in a pure biosimilar play with vast upside potential, you need look no further than VPRO."

As you can see the comments about Viropro were outstanding—maybe too outstanding, in fact.

Viropro is a penny stock. It trades on the OTC market with approximately 170,000 shares trading daily. The micro-cap company is based out of Irvine, CA and looks to be a global player in the biosimilar industry.

I am always a bit skeptical when I receive a surge in comments about one particular company, especially a penny stock. Could it be a PR team at work?

I’m not saying that Viropro will never be a viable company, particularly since the company’s new relationship with Spectrum Pharmaceuticals. And I am not saying that Viropro is not a viable company.

But I am saying that before one enters into a position of a company, they need to do their due diligence. Just because they are affiliated with biosimilars does not mean that they are a going to make money. In this case, I am going to stay on the sidelines and watch to see how Viropro performs over the coming months.

The biosimilar space will be one that I will be watching closely over the next few years. There are a few well-established small cap generic drugmakers that will have an overwhelming advantage in this new market. These companies could be big winners in the biosimilar space going forward.

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