Two big coming biotech IPOs are likely to reignite investor interest in biotech, specifically the genomoics sector. Complete Genomics (Future symbol: GNOM) and Pacific Biosciences (Future symbol:PACB) have filed S-1 Registration Statements with plans to go public in the fourth quarter. This also happens to be the time when the biotech market is bullish seasonally.

Biotech had a good year in a choppy overall 2010 market, with the NYSE Arca Biotech Index up 15.3% year-to-date (YTD). Selected molecular diagnostics stocks have fared well YTD with GenProbe (GPRO) up 12%, Illumina (ILMN) up 50% , and Sequenom (SQNM) up 44%.

A rally in diagnostics stocks was triggered last week by earnings from for major players. This week,  the AACC (American Association of Clinical Chemistry) meeting could add fuel to the fire, when close to 20,000 clinical lab professionals and over 500 exhibitors gather to discuss key industry developments.

As of mid-morning trading, many diagnostic stocks are up 2%. Here is a financial summary from last week's earnings announcements:

		7/26/2010	2010
Company	Symbol	P $	Q2 Rev $	Q2 EPS	PEG	P/S	Sh.Equity $
Cepheid	CPHD	16.5	49.6	-0.03	n/a	4.8	137
Immucor	BLUD	19.3	82.9	0.3	1.27	3.87	439
Meridian	VIVO	19.5	33.9	0.16	1.72	5.4	139
Neogen	NEOG	28.3	39	0.2	1.66	3.8	153

Among the topics that will be covered in Plenary Sessions at the AACC are: Biomarkers for Alzheimer Disease, the Changing Healthcare Landscape, Stem Cells, Inflammation and Cardiovascular Disease and Systems Medicine (P4).

There are several symposia such as Personalized Medicine and Immunosuppression in Solid Organ Transplantation. Laboratory medicine topics are very broad including diabetes, endocrinogy testing, pharmacogenomics,lipid management and sepsis diagnosis. The conference program is here.

Our focus for the Meeting will be companies in the "Tools and Diagnostics" area as well as hot topics in laboratory medicine. Some players exhibiting in our universe in addition to those four above are: Abaxis (ABAX), Alera (ALA), GenProbe (GPRO), Luminex (LMNX), Quidel (QDEL), SeraCare (SRLS) and ThermoFisher (TMO) .

Rod N. Raynovich is the principal with Raygent Associates, a biotech consultancy, as well as a regular contributor to The Rayno Report.

Bloomberg yesterday started the rumor-mill going that Sanofi-Aventis is on the prowl for a large biotech company, sending many biotech stocks higher on Friday (on a day in which the market is down).

The rumors make sense, as big pharma is constantly on the prowl for solid biotech companies. Let's take a look at the dynamics and which companies would be most attractive from a valuation standpoint. The three companies mentioned cited by Bloomberg as targets include Allergan (AGN), Biogen-Idec (BIIB), and Genzyme (GENZ).

The Wall Street Journal, trying to catch up with Bloomberg, has tossed in Amgen (AMGN), Gilead (GILD), and Celgene (CELG).

Let's take a closer look at all of these stocks to try to see who is the best bet. Biogen jumps out to me the most. Including the most recent quarterly results, Biogen is trading at a forward P/E of 10. It has an operating margin of 30%, return on equity of 16%, and has been growing at a 7% clip. The market cap is $13B.

LOS ANGELES -- On Monday April 26, a panel moderated by CNBC anchor Maria Bartiromo including executives and leaders including Michael Milken convened to discuss Health Reform in a session focused on "Prevention and Cures". The primary focus of the discussion was the need for government policy and health reform to address "wellness" and chronic diseases such as diabetes. One of the conclusions from the panel is that the healthcare reform recently been enacted into law is "uneconomic" and has put prevention and wellness on the "back-burner" even though unhealthy living represents a major  cost to society. A lingering concern is that we are a few years away from price-setting of medical products and services.

Gilead Sciences (GILD) share got clobbered today, trading down 10% at midday, after the company lowered its 2010 sales forecast to a range of $7.4-$7.5B from $7.6-$7.8B citing recently enacted healthcare legislation. Net income for the quarter ended March 31 jumped from $854.9M or $0.92/sh. compared with $589.1M or $0.63/sh. in the Year ago period. Gilead’s first-quarter sales increased 24% to $1.79B primarily due to strong sales of its antiviral drugs to treat HIV-related conditions. CFO Robin Washington said the decrease reflects the impact of recently passed U.S. healthcare legislation which would have an sales impact of $200M and an earnings impact of $0.15 sh. in 2010 primarily in the HIV business. Sales of its HIV drug Atripla increased 36% to $692 M for Q1 compared to analysts’ estimate of $726M. Royalties from Roche sales of Tamiflu were $246.3M from increased sales related to the influenza pandemic. The healthcare reform impact would be  related to pricing of antiretroviral sales in the use from Medicaid and Medicare Part D. However, no 2011 guidance was given due to the fact that the bill was passed only on March 23. There are also pricing pressures in Europe.

This week's development of a legal judgment against Myriad Genetics (MYGN) is shaking the biotech world. On Monday, a judge in the District Court for the Southern District of New York ruled against Myriad and granted a motion for the plaintiffs, the American Civil Liberties Union(ACLU) and others, concluding that isolated DNA compositions are not patent eligible subject matter. This essentially invalidated Myriad patents BRCA1 and BRCA2 used in their breast cancer diagnostic tests. Intellectual Property (IP) is the raw material for the creation of biotech companies. Without an invention covered by a robust patent portfolio, venture funding can be very difficult. Since the beginning of the “genomic age” in the late nineties the patenting of genetic materials and methods have gone through a minefield of lawsuits and opinions but in the end  have significantly protected companies with well designed IP. However, patents on human genes have always been a gray area.

  Although we are still technically in a bear market for early-stage biotechnology due to lack of speculative funding from both VC’s and investment banks syndicating IPO’s, many public companies have been doing well. As a result we have a more bifurcated market with larger caps stable or growing and smaller caps in a funk. Nonetheless there is plenty of money on the sidelines that will drive stocks of companies with compelling products and technology. At the recent Rodman and Renshaw Investment Conference in November of 2009  the buzzword was “cash runway” as smaller cap companies with weak balance sheets need to retrench until new money comes back into the market. Nonetheless, Rodman continues to fund PIPES in the biotechnology sector as technology is progressing and deals are being done. Negative articles and “hand wringing” abound in the biotech market citing clinical trial failures, political concerns, a dearth of funding and a “breakdown of the business model." But these critics miss the point: the universe of companies and universities in the biomedical sector are trading and investing in R&D programs that result in drugs, diagnostics and services with the objective of improving healthcare.

We've been pointing out the wild action in biotech stocks, where one stock can rally 50% in a month yet another can get pummeled for 67%. That's the world of Biotech Bingo. Today's lottery ticket is Intermune (Nasdaq: ITMN), which looks like it will trade up something close to 60% today after an FDA Panel of lung experts voted 9-3 in favor of approval of Intermune’s drug perfenidone for idiopathic pulmonary fibrosis. IPF is a disabling and ultimately fatal disease that affects about 200,000 people in the U.S. and Europe combined with 30,000 new cases per year in each region.

Ebix Inc, the company we discussed here on Friday, is out with earnings and they don't look too shabby. The company hit $0.92 in EPS for Q4 2009 and $3.10 for the year. Net income was $12.1, up 53% year-over-year The stock is bid in the pre-market at $18, up 6% from a $16.95 close of Friday. It''s a small-cap stock, not a lot of institutional interest in the pre-market, so it's hard to tell what will happen when the market opens. But it looks to me like the stock is going to open up big. These numbers represent new record revenues for the company. Keep in mind here the thesis was that this is a fast-growing, profitable company whose shares were undervalued. I have no idea what it was doing with a P/E of 12, but it's going higher.

On February 18th, we told you why the Rayno Report was bullish on diagnostics. I guess we weren't bullish enough, as the life sciences and biotech markets have taken off in the last month, with many of the picks up big in less than a month. Here's just an example of what we saw in the last 20 days: Sequenom (SQNM): Up 50%. Holy cow! Why didn't we bet the ranch (cause the wife won't let us -- and we don't own a ranch). Genomic Health (GHDX): Up 9%. Not bad. Qiagen (QGEN): Up 5%. Okay, so not as impressive. SeraCare (SRLS): Up 0%. Okay, not impressive at all. IBB ETF (IBB): up 8%. A general biotech rally clearly took hold. What to do now? Well today, the risks in the biotech market were evident as Medivation (MDVN)  crashed after releasing disappointing Phase III results for its Alzheimer drug, known as dimebon, saying that the drug was ineffective in treating cognitive decline or behavioral disorders. The stock plunged 67% to 13 on Wednesday. In a joint release Medivation and its partner Pfizer (PFE) said its two Phase III trials did not meet its co-primary or secondary efficacy endpoints compared to placebo. Our partner Raygent Associates, which has been following these developments, says: "Alzheimer Disease (AD) has proven to be one of the most difficult challenges for healthcare," with over 5 milliion individuals affected and estimated costs more than $600 billion. Drugs currently on the market have had minimal effectiveness. The bottom line: if you happened to wander into any of the biotech stocks, especially SQNM, in the last month, maybe it's time to book some of those large gains. But clearly biotech and diagnostics continue to be in bull mode and should be held in some amount in diversified portfolios.