Politics Favor Biotech Sector

09/10/2012 10:00 am EST

Focus: STOCKS

Ken Kam

CEO, Marketocracy, Inc.

Marketocracy's Ken Kam explains why the biotech sector does well in an election year, and also shares two biotech stocks that he likes now.

Biotechs have been a winning sector, and we’re talking about why with our guest today, Ken Kam. Ken, what’s going on with biotechs?

Well, you wouldn’t know it, but biotechs have a political season. The reason is because whenever there is an election, the FDA has a fire under its butt to prove things to show that they can get business done.

When a new president comes in, usually during the first three years there’s a complete changeover of the personnel there. Things come to a standstill. But in this year, an election year, we’re seeing a lot of approvals from companies that probably should have been approved years ago.

They’re all coming to fruition now, so I feel pretty good about investing in the biotech sector...at least until we see who wins the election.

Now, a lot of these companies arein their early stages, obviously they are R&D-heavy, and people love to speculate about which ones could be acquisition targets. Is that a way to invest in these or not?

I think it’s the second reason why you should invest. It should never be the primary reason. And I think from your question, you’re looking at companies that are maybe too early to be considered as investments. They’re more speculation.

I don’t consider a biotech firm to be an investment until you’ve at least seen clinical trial data to show you that the drug works. Until then, it’s just speculation, and the people best positioned to evaluate that are scientists, not investors.

So what are some companies that you see potential that investors might want to do some research into?

Well, two that just recently got approval. One is Vivus (VVUS). They just got a weight-loss drug approved that’s one of only two drugs that’s been approved for weight loss in the last ten years.

But ask yourself this: If you ask a room full of people how many of them would like to lose 10% of their body weight without having to diet or exercise, what percentage would raise their hand?

Everyone.

Everyone, so this is not going to be a very hard sell.

Alright, so now that all the regulatory risk is out of the equation, short-term traders have sold the stock because it’s gotten approval. You can buy the stock now for about a third less than it was trading for right before the approval, and benefit from, I think, a tremendous sales run.

The second one is company called Amarin (AMRN). They just got approval for a drug that helps you to manage your triglycerides. Now, there’s only one other drug that’s approved for this, and it sells $1 billion a year.

The problem with that other drug is when you take it, it does help you to manage your triglycerides, but it tends to raise your cholesterol level. So if you’re one of those patients who has to manage both your triglycerides and your cholesterol, you can’t take this drug, and even if you can, you have got to be careful, because no one really wants to raise their cholesterol level.

Amarin’s drug has the benefit of allowing you to manage your triglycerides without having any impact on your cholesterol. So I can’t see any good reasons why anyone that’s taking the other drug would not consider switching.

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