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Biotechs to continue momentum after record year, Cenkos says

The performance of healthcare and biotechnology benchmarks in both the US and UK indices has been impressive, all of which begs the question: is this a bubble?

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Last year life sciences firms raised a record amount in fresh capital, with investors this side of the pond finally getting with the programme.

According to stockbroker Cenkos, which has done an end-of-year review of the sector, US$104bn was raised by biotech firms through a mixture of takeovers, stock market flotations and secondary share issues; that was up from the previous year’s US$93bn.

It was also a good year for regulatory progress, with a flurry of drug approvals by the US Food and Drug Administration (FDA) towards the end of the year.

The performance of healthcare and biotechnology benchmarks in both the US and UK indices has been impressive with one, three and five year returns outpacing most sectors, including the technology sector, Cenkos notes.

All of which begs the question: is this a bubble?

Not in Cenkos’s view, it isn’t; it sees the sector continuing its current momentum, driven by innovation and an increasing number of new drugs reaching the market.

“Three years ago we predicted that the biotech sector had entered a ‘10 year bull market’ mirroring that of the technology sector. We see no reason to change our stance and would continue to recommend adding biotechnology (high beta) stocks,” the broker said.

The broker picks “five for fifteen”: ReNeuron, Benchmark Holdings, Shire, GlaxoSmithKline and Imperial Innovations.
Shire and Glaxo need no introduction but the other three are worth a closer look.

ReNeuron (LON:RENE) is a stem cell company that has a phase II stroke programme result due in 2015. If the programme is successful, Cenkos thinks the company could become of the most important biotechs in the stem cell space.

Benchmark (LON:BMK) is a £230mln-valued global animal business that could revolutionise the farming of aquatic species, and it also has one of the largest drug (small molecule and vaccine) pipelines in the industry.

Intellectual property firm Imperial Innovations (LON:IVO) is described by Cenkos as “one of the best investors in the small company life sciences and technology space.

It has a portfolio of more than 80 companies, but the current value only reflects a small number of those companies, so a re-rating is expected as other companies in its basket mature.

Other minnows in the sector that get a ‘buy’ recommendation from Cenkos include ANGLE (LON:AGL), Abzena (LON:ABZA), ImmuPharma (LON:IMM) and Proteome Sciences (LON:PRM).

Quick facts: ReNeuron Group PLC

Price: 141 GBX

LSE:RENE
Market: LSE
Market Cap: £44.88 m
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