RBC picks Gilead, Adolor as biotech underperforms for 2006 to date

By Lisa Kerner

Charlotte, N.C., Aug. 11 - The biotechnology sector outlook is underperforming, according to RBC Capital Markets analyst Jason Kantor, as the American Stock Exchange Biotechnology Index (BTK) is down 5.4% year to date compared with a 2.4% gain by the Standard & Poor's index.

RBC continues to favor larger-cap companies with visible revenue and earnings growth or smaller companies with marketed products or lower-risk late-stage product candidates.

According to the analyst, there is no clear catalyst to drive the sector higher in the near term. Investors should seek lower-risk stocks while building longer-term positions in earlier-stage companies at reduced valuations.

Gilead Sciences Inc. is RBC's best large-cap pick for its HIV franchise, management, operating leverage, strong revenue and earnings outperformance and emerging pipeline.

Kantor's best small-cap pick is Adolor Corp. based on its lower-risk late-stage clinical candidate alvimopan and its lucrative partnership with GlaxoSmithKline. The analyst also looks for significant upcoming news flow from the company, as well as positive phase 3 results from alvimopan in the large chronic opiate-induced constipation indication.

RBC upgraded The Medicines Co. to sector perform from underperform on the company's positive Acuity results.

Genitope Corp. was downgraded to sector perform from outperform after its phase 3 trial did not achieve its primary endpoint.

During the quarter, RBC began coverage of Regeneron Pharmaceuticals with an outperform rating and Progenics Pharmaceuticals with a sector perform rating.

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