By Randall Osborne

Editor

With the roaring success and abysmal, crashing failures that have characterized the biotech market lately, investors (and would-be players) have searched more desperately than usual for barometers, gauges, any means of measurement and prediction that might allow them to get in sooner on the "sure things" and get out sooner when the sure things go bad.

It's a dangerous game.

The small view is important to individuals with cash they're hoping to place on the right square before the roulette wheel spins, but just as vital is the bigger picture. Particularly for those investors who've not previously ventured into the biotech realm, the question has to do with whether the industry as a whole is worth investigating, or is so chancy that other high-tech stocks remain the better bet.

Who can win? Can anyone win over the longer haul, or is biotech still (as financial observers once routinely joked) a game more wisely left to crazy people with money to burn?

"I'd never tell someone to invest 100 percent in biotech," said Curtis Hogue, senior analyst with San Francisco-based Volpe, Brown, Whelan & Co. But that was true before the recent wild rides began, he added, and he would say the same of any sector.

Just when it seemed the industry had gained a level of sophistication and relative steadiness had reached a degree of verifiable prosperity, albeit in some cases overblown such catastrophes as the March 14 statement by President Bill Clinton and British Prime Minister Tony Blair proved enough to spoil the soup.

Clinton and Blair said data from the human genome mapping effort should be made public, and freely available. It already was. But finicky investors took the remarks as evidence that whatever patent protection might have been granted for gene-related inventions derived from the data was about to be taken away by the government. Away they ran.

Recovery happened, or seemed to. Clinton "clarified" his earlier comments by saying pretty much the same thing over again: Raw data ought to circulate without cost to anyone. But anything developed from the data that might prove useful ought to get any patent it deserves. "If someone discovers something that has a specific commercial application, they ought to be able to get a patent on it," Clinton said.

The Biotechnology Industry Organization (BIO) hailed Clinton's latest comments, saying it has been "working diligently" to repair damage done by misinterpretation of the earlier ones. Chuck Ludlam, vice president of government relations for the Biotechnology Industry Organization (BIO), noted the Clinton-Blair statement "actually included a specific endorsement of patent protection." BIO "appreciate[s] the president's effort to make this point clear and to reassure investors who fund this vital research," he said.

By last Friday, the NASDAQ was showing strength, and biotech stocks especially flexed their muscles. Celera Genomics led the charge, its stock (NASDAQ:CRA) jumping Thursday to $140, up $25, after Celera said it had finished one person's genome and was moving ahead to annotate data and collect more. The company is using computers along with its shotgun sequencing technique (working from both ends of double-stranded, cloned DNA) to sequence the human genome ahead of the government's Human Genome Project.

Even before Clinton restated himself and Celera disclosed its progress, the market had become more sanguine. "People actually read the statement, instead of the headlines," in Clinton's words, and the charm of genomics was doing the magic it had done for months.

Analysts had become ready to make their happy predictions about the industry as a whole.

"Are they still saying, 'We're going to see a turnaround soon,' or are they saying, 'The market is coming back strong'?" one source asked in mid-week. "The thing about analysts is, it doesn't matter what they say. They get paid the same. But when you've got Joe Blow running a biotech, he can't wait. He's in real trouble."

Trouble there was, and trouble there is. The trick is figuring out how much.

Market watchers relying on the day's news and the performances of one index or another are much like surfers, riding waves they see coming from far off or more often climbing atop their boards just as the waves crest. Conservative investors won't move by such rules. Braver souls are learning maybe they shouldn't, either.

Maybe they should keep an eye on mutual funds.

Robert Adler, president of AMG Data Services, of Arcata, Calif., which provides data on the flow of money into and out of mutual funds, has no advice either way. "I don't have a clue," he said.

"If you ask a stock broker, he will tell you to buy stocks. If you ask an investment fund, they'll tell you something else. Adler added, "They all have an axe to grind. I don't have a dime in either one. I have all my money in my business."

Near the peak of biotech's recent boom (or "boomlet," as some analysts prefer to call it), about $1.3 billion of mutual fund money was moving into the biotech industry per week. Adler's firm follows the ups and downs. By March 8, the percentage change in flow was 5.61, on the positive side. The slide began in the figures March 15 (the day after the Clinton-Blair statement), when the percentage change was down 3.28. The following week it was down 1.07, and the week after that, March 29 the most recent week for which figures were available it was down 0.74 percent.

Hogue said money flow into sector funds "is a decent way to monitor the interest level, but from the individual investor's perspective, I wouldn't pay much attention to it. I'd look more to the 5-year to 10-year history of the fund you're investing in. And the stocks are going to go up, because [the mutual funds] have to put the money to use."

His firm handles some transactions on the sell side of mutual funds for institutions, Hogue said, and he would not advise individuals against investing in such funds. But the determinants should always be the level of risk the investor is willing to endure, and how much stock-market research he or she is willing to do.

"If you're long-term, buy-and-hold, there are advantages to buying a basket of individual stocks," he said. "You don't pay the management fee the mutual fund charges you. But, for someone who doesn't know the sector very well, mutual funds are fine. If you'd rather not do any work, then go with a mutual fund."

Hogue said he would not advise anyone to put more than 10 percent or 20 percent of invested cash into a particular sector. He agrees with "the idea of a mutual fund diversifying the risk over 10 or 15 stocks, but you can also do that by buying the stocks and holding them. It depends on what kind of investor you are."

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