Biotech's Icahn Effect

The biotech bull market has been roaring forward, with many indices reaching new highs last week. The sector bottomed in March 2009, briefly sold off hard in July 2010, and since then has never looked back. Major biotech indices are up 11% year-to-date. What's been interesting is the heavy involvement of famous investor and investment activist Carl Icahn.

Icahn gets considerable media attention for his investments in companies that he believes are undervalued, such as Chesapeake Energy Corp. (NYSE: CHK), Lions Gate Entertainment Corp. (NYSE: LGF), The Hain Celestial Group Inc. (Nasdaq: HAIN), and Motorola -- which split into two companies, Motorola Mobility Holdings Inc. (NYSE: MMI) and Motorola Solutions Inc. (NYSE: MSI), after his activist involvement. But over the past 24 months, Icahn has taken large positions in biopharmaceutical companies that are among the best performers.

Just last week, Biogen Idec Inc. (Nasdaq: BIIB) soared 15% after reporting quarterly profit of $294.3 million and earnings per share of $1.20, compared to $217.4 million and EPS of $0.80 in the previous year's quarter. Revenue from its drug, Tysabri, used to treat Crohn's Disease and multiple sclerosis, grew 15% to $251 million. The company also reported late-stage clinical data on its experimental oral MS drug, BG-12.

Biogen claims BG-12 cut MS relapses 49% after two years and reduced progression of disability by 38%. MS affects 2.1 million people worldwide. In an earlier study, competitor Teva Pharmaceuticals Industries Ltd.'s (Nasdaq: TEVA) drug for MS, Laquinimod, cut relapses by 23%, and the stock traded down 7% on remarks from Biogen about BG-12. Biogen-Idec also has other products in its Phase III pipeline for hemophilia (Factor X and VIII), leukemia, and lymphoma (anti-CD 20 MAB).

Because he has the hot hand, Icahn bears watching in biotech and pharmaceuticals. Here are Icahn Capital's positions as of Dec. 31, 2010, according to Nasdaq data and stock performance over the previous 12 months:

• Biogen Idec Inc. (Nasdaq: BIIB), 12.9 million shares, Up 96%
• Sanofi-Aventis (NYSE: SNY), 10.5 million shares, Up 42%
• Amylin Pharmaceuticals Inc. (Nasdaq: AMLN), 14.4 million shares, Down 38.9%
• Regeneron Pharmaceuticals Inc. (Nasdaq: REGN), 2.44 million shares, Up 104%
• Enzon Pharmaceuticals Inc. (Nasdaq: ENZN), 4.7 million shares, Up 4.9%
• Forest Laboratories Inc. (NYSE: FRX), 1.2 million shares, Up 20%
• Exelixis Inc. (Nasdaq: EXEL), 2.4 million shares, Up 95%

Large funds and hedge funds like Icahn Capital are required to file quarterly holdings statements known as 13D statements. It will be interesting to see first-quarter 2011 data to see how these positions have changed. Carl Icahn definitely jumped into the biotech market at the sweet spot. Are the stocks up because of Icahn's buying -- or because he found real value? In the case of Biogen Idec it looks to be a case of real investment savvy.