Biotech/Health Stocks

We believe it makes sense to put some higher risk and higher reward biotech stocks in our portfolios. A small investment in the right biotech company can result in big profits. Just consider one of our favorites Inhibitex (INHX), which we bought for less than $1 per share. Inhibitex shares recently traded for over $10 per share. We focus on biotech companies that have significant insider ownership, a strong management team, and solid balance sheets with high cash balances. We seek companies with multiple product candidates in the pipeline, and treatments that have blockbuster potential. Many large biotech and pharmaceutical companies are seeking to acquire smaller biotech firms and buyouts can also lead to exceptional gains for investors. It makes sense to include exposure to the healthcare sector because demographics show that the combination of aging populations and longer lifespans will provide exceptional long-term gains for many years to come. Rising incomes in emerging market countries will increase demand for treatments and products created by pharmaceutical, biotech and other healthcare companies.

Inhibitex, Inc. (INHX) is a biotechnology company developing potential treatments for shingles and chronic infections caused by hepatitis C virus (HCV). INX-189 has completed Phase Ib clinical trials for the treatment of chronic hepatitis C infection; FV-100 is in Phase II clinical trials for the treatment of herpes zoster or shingles. The company is also developing anti-bacterials which is under Phase I clinical trials to prevent Staphylococcus aureus infections, and Aurexis, which has completed Phase II trials for the treatment of Staphylococcus infections in patients. This stock has been a top performer for us and has jumped from under $1 to a recent high of over $23 per share. We think it's time to take profits now that Bristol-Myers has agreed to buy the company for about $2.5 billion.

Catalysts: Positive clinical data and additional partnership agreements.

52 week range: $1.99 to $16.49

12 Month Target Price: $15 Long-Term Target Price: $20

OPKO Health Inc. (OPK) is focused on developing and commercializing health diagnostics tests, vaccines to diagnose, treat, and prevent neurological disorders, and other pharmaceutical products. OPKO Health, Inc. was founded in 2006 and is headquartered in Miami, Florida. This company has management that has proven to be very successful in the past. Phillip Frost, M.D. is the CEO of OPKO and he formerly was the CEO of Ivax before it was acquired by Teva Pharmaceutical Industries Ltd. (TEVA). Dr. Frost is currently also the Chairman of the Board for Teva Pharmaceuticals and it is possible that OPKO might be a price buyout target for Teva someday. Dr. Frost and other insiders have spent over $10 million buying OPK shares in 2011. This kind of insider buying is rare. It shows confidence and a high level of commitment by management.

Catalysts: Positive clinical data and additional partnership agreements, or a buyout offer.

52 week range: $2.86 to $5.85

12 Month Target Price: $8 Long-Term Target Price: $10