* Big Pharma seen targeting mid-cap cos with proven drugs
* Alcon, Allergan, Shire likely targets
* Pharma services cos to gain from generics cycle
* Not enough clarity for small-cap bets
By Jennifer Robin Raj
BANGALORE, Aug 13 As big pharmaceutical
companies seek replacements for blockbuster drugs that lose
their patents in 2011 and 2012, investing in mid-tier companies
with proven products could be a good bet, the manager of a
healthcare-focused fund said.
Earlier acquisitions of one large drugmaker by another have
succeeded in cutting costs but have sometimes led to reductions
in productivity of research and development, said Derek Taner,
lead portfolio manager of AIM Global Health Care Fund
"What they appear to be doing now is targeting smaller
companies that are big enough to move the needle but not big
enough to disrupt any sort of corporate culture, or things that
are incremental or additive on the R&D side," he said.
"The companies that fit that profile, that are innovative,
have good platforms and products that will fill that 2011, 2012
patent hole, would include companies like Alcon ACL.N, Shire
(SHP.L) and Allergan (AGN.N)."
The fund, which has current total net assets of $968
million, also holds positions in Genzyme Corp GENZ.O, Amgen
Inc (AMGN.O) Gilead Sciences Inc (GILD.O) and Bayer BAYG.DE.
"Instead of owning the Pfizers and Mercks that are doing
the buying, we'd rather own the potential targets of these
guys," Taner said.
The fund, which invests about 20 percent of its assets
internationally, is significantly underweight on large-cap
Despite inexpensive valuations, growth concerns stemming
from patent issues and poor pipelines will keep a lid on
large-cap stocks, Taner said.
During the last quarter, the fund eliminated its position
in Pfizer Inc (PFE.N). The drugmaker's acquisition of Wyeth
WYE.N does not fully fill its patent hole, and Pfizer has
very little in the pipeline, Taner said.
The fund also reduced its positions in Wyeth and Genentech
after the companies agreed to be bought.
The fund had a total return of 13.23 percent year-to-date
as of Tuesday, compared with a 4.99 percent gain in the MSCI
World Health Care Index.
BETTING ON INTERMEDIARIES
Another sector that will benefit from multibillion-dollar
drugs going generic is pharmaceutical services, Taner said.
Some of the fund's biggest additions since March have been CVS
Caremark Corp (CVS.N), a drugstore operator and pharmacy
benefit manager, and McKesson Corp (MCK.N), a pharmaceutical
"For us, it's a better approach to say all these drugs are
going to go generic," Taner said. "We don't care who
genericizes them. We know that the healthcare services
intermediaries are going to benefit from this, and that's how
we are going to play it."
The fund also holds positions in Medco Health Solutions Inc
MHS.N and Express Scripts Inc (ESRX.O).
LEERY OF SMALL-CAPS
Within the healthcare space, Taner is wary of small-cap
biotech companies as they tend to release limited data on their
"You don't start to see the warts till later on in the
process," he said.
"It's just a tough space to invest in for a variety of
reasons. These companies are not really undiscovered. There are
people scouring the entire universe of market caps looking for
(Editing by Mike Miller)