Fund View: T Rowe health fund finds value in biotechs

By Esha Dey and Bhaswati Mukhopadhyay

Wed Jun 27, 2012 7:46am EDT.

Reuters) - Large U.S. biotechnology companies will deliver high growth over the next few years as several innovative and breakthrough drugs hit the market, manager of the T. Rowe Price Health Sciences Fund said.

Kris Jenner, who has been managing the fund for the past 12 years, said big pharmaceutical companies with a weak product pipeline and staring at an impending patent cliff will continue to scoop up promising biotechnology firms.

Recent pharma-biotech deals include AstraZeneca Plc's acquisition of U.S. company Ardea Biosciences for $1.26 billion. GlaxoSmithKline Plc is chasing long-time partner Human Genome Sciences Inc with a $2.6 billion offer.

Jenner expects Gilead Sciences Inc, Biogen Idec Inc and Celgene Corp in particular to grow at a fast clip.

He highlighted Gilead's hepatitis C portfolio and Biogen's experimental multiple sclerosis drug BG-12 that is expected to be approved early next year.

"With Celgene, I think that people have become too pessimistic about its growth prospects at a time when their pipeline is probably starting to deliver," Jenner told Reuters.

Celgene recently withdrew an application to sell its blood cancer drug, Revlimid, for a wider patient population in Europe after regulators asked for more information proving that the drug's benefits outweigh the risks.

Top holdings of the T. Rowe Price Health Sciences Fund, with total net assets of $4.29 billion as of June 25, include Alexion Pharmaceuticals Inc, cancer drugmakers Incyte Corp and Pharmacyclics Inc, Canadian drugmaker Valeant Pharmaceuticals International Inc and pharmacy benefit manager SXC Health Solutions Corp.

The fund has outperformed its benchmark Lipper Health/Biotechnology Funds Index since its inception in 1995. The fund has posted returns of 27.59 percent, compared with the benchmark index's 22.95 percent over the past three years.

Jenner is not too excited about Amgen Inc, another top biotechnology name.
"A lot of (Amgen's) products are susceptible to generic competition in the 2015 timeframe," said Jenner, who holds a doctorate from Oxford University.

Biotechnology stocks made up 33.4 percent of the fund's assets, followed by healthcare services at 28.7 percent and pharmaceuticals at 18.4 percent as of May 31.

HEP-C FOCUS
Jenner said hepatitis C is an area that will continue to attract extensive investor interest for several years.

"When we see how many individuals are affected and what are the consequences of long standing hepatitis C infection, such as liver cancer, liver failure and death, I think we will be talking about the benefits of the hepatitis C therapies for quite some time to come."

Among the smaller hepatitis C drugmakers, Jenner likes Idenix Pharmaceuticals Inc.
"They have drugs that are unpartnered in key areas and their stock is at a fraction of a value that ... Pharmasset was at when it was acquired," Jenner said.

Gilead offered a hefty premium of 89 percent to buy Pharmasset for $11 billion in November to gain access to its next-generation hepatitis C treatments.

Hepatitis C is a liver-destroying disease that affects about 170 million people worldwide. The market for hepatitis C drugs is expected to soar to $16 billion by 2015 from $1.7 billion in 2010, according to research firm Decision Resources.

Jenner, who describes himself as a "soccer/lacrosse dad," has lowered his exposure to healthcare IT provider Allscripts Healthcare Solutions as the sector's valuations were priced for "higher expectations."

"We see growth there, but the question is if the growth is largely priced in the stocks or not."
(Reporting by Esha Dey and Bhaswati Mukhopadhyay in Bangalore; Editing by Sriraj Kalluvila)