Sorting through the haystack ofbiotech stocks looking for the golden needleis tough work. It helps if you havesome idea of what the company does andthe science behind its drug research. Thatneed for knowledge gives Kris Jenner,MD, PhD, a leg up on other fund managersas he guides the $1.2-billion T.Rowe Price Health Sciences Fund (800-638-5660). Dr. Jenner has a doctorate inmolecular biology from Oxford Universityon his resume, along with an MDfrom Johns Hopkins and a 4-year surgeryresidency at Johns Hopkins. His medicaltraining not only gives him the scientificbackground he needs to make decisionsof micro-cap biotech startups, but it hasalso taught him to stay cool under thepressure of running a huge mutual fund.
So far, according to a recent profile, he's done prettywell, with an average annual return 6%higher than the S&P 500 over the past 4years. Medical knowledge is valuablewhen picking biotech stocks becausemost traditional stock measures likeprice/earnings ratios go out the windowwith these companies. Even big-namebiotech firms like Genentech, for example,sell for a heady 47 times earnings. Inmany cases, there are no earnings anddecisions have to be made on the qualityof the company's research and the commercialoutlook for its products.
Among the companies that Dr. Jennervalues are Onyx Pharmaceuticals, whichis developing cancer-fighting biochemicaldrugs, and Neurocrine Biosciences, whichconcentrates on treatments for diseasesaffecting the neurological and endocrinesystems. Dr. Jenner expects the FDA toapprove Neurocrine's insomnia drug,Indiplon, which could have sales of $1billion annually. Another favorite is not adrug company, but the health benefitsmanager Anthem, which recently announceda merger with Wellpoint. Themarriage will create the largest healthinsurer in the nation. Anthem could postan earnings growth of 15% annually forthe next few years.