By Randall Osborne


Today, a single question prevails in biotech, and it's the same question officials have been asking since the industry first began to show serious signs of life in the pharmaceutical marketplace. It's just become more complicated to answer.

The question: How "real" is success?

Once regarded by the public as the domain of mad scientists bent on cloning humans for sinister though indistinct purposes, biotech has matured into a respected science aimed at furthering the quality and length of life for human beings already in existence beings whose diseases have proved more than enough to keep researchers busy developing new methods of drug discovery.

Nobody jokes about the industry anymore. Despite setbacks along the way, it has proven mightily capable of drawing money at a level appropriate to the deepening respect.

What looked like a bona fide, genomics-fueled revival that began late last fall suffered a powerful jolt earlier this month, when President Clinton and British Prime Minister Tony Blair said data from the human genome map data sifted and used by patent-seeking genomics firms should be made public and freely available. (See BioWorld Financial Watch, March 20, 1999, p. 1.)

Biotech stocks fell like ducks shot from the sky.

High-rolling momentum investors, many of whom rode Internet stocks to huge profits, had been pouring their resources into genomics (and, to some degree, into biotech overall) for about six months, before Clinton and Blair spoke up. An increasingly information-based biotech industry had made sense to the former Internet investors only as long as the boat didn't rock.

When the Clinton/Blair statement put jitters into the market, retail investors ran from the scene. Speculators, as if they'd been waiting for an excuse, bailed out of the sector even more quickly than they'd entered it. Game over.

What the two government leaders actually said didn't matter only the market's negative response, which started small and then snowballed.

"[The statement] didn't say anything," said Rich van den Broek, an analyst in the New York office of Chase H&Q. "Tony Blair has nothing to offer. He can say whatever he wants, but he has no relevance," since gene-mapping efforts are private in the United Kingdom. "And Clinton, you could argue, is the commander in chief of [the National Institutes of Health]. It's the stated goal of the NIH to put all the stuff in the public domain."

The importance of the Clinton/Blair remarks were overplayed by the media, van den Broek said.

"Even if the statement had been new and significant, which it was not, some [companies] weren't impacted, and you could argue it was good news," since the two leaders seemed to reaffirm the value of patents, even as they called for widespread availability of gene-map data, he said.

In any case, the media fanfare and market reaction are history. What matters to the industry now is whether the six-month rally that began last fall was only a flash brought on by fickle momentum investors, or was part of a valid, steady growth trend that suffered a temporary slowdown when those investors panicked.

It was a little of both, van den Broek said.

Smart institutional money was behind biotech's glow in December and January, but in February and March, "it's been a free-for-all," he said. "As the group got hotter, the more came in, and the less they knew [about biotech]. They took them all the good, the bad and the ugly."

Those who pulled out after the Clinton/Blair statement were retail investors, mostly.

"If you look at the institutional activity, it wasn't all that significant," van den Broek said. "It was all done in very small pieces. You'd be surprised how little my phone rang."

By the middle of last week, institutional investors were coming on strong enough that the biotech market was responding favorably, he said.

But attempts at fortune telling based on recent events positive or negative will yield very little, van den Broek said. Last week, Symyx Technologies Inc. and Aurora Biosciences Corp. withdrew their offerings.

"Looking for trends in a market that lives not even quarter to quarter but day to day, you can be looking at the trees and not the forest," he said. "[People are asking,] 'Is biotech back? Is it cold or is it hot?'" he said, and such an approach "won't give you any real insights."

Furthermore, as magical as genomics may seem, "it's not going to significantly change the time to market for products," he said. "This is a business where the ultimate game is health-care products, and it has very, very long product cycles. Whether you've identified perfectly the molecular target, it doesn't matter. That ain't going to change the time to market."

The fundamentals are the same as ever, van den Broek said, and the industry is proving itself along fundamental lines.

"What you'd like to see is so-called better companies acting better [in the market], no matter what the environment, and you're gradually seeing that happen," he said. "Everybody has his own opinion of what's a good company, but everything seems to be moving in a similar manner now. So far, what we've really seen is sector moves: the group's up, the group's down."

Biotech's volatility has been the rule "for some time now," he said. "It came to our little sector for most of this year ripped them up on the upside, and now has damaged them on the downside. We've sucked quite a bit of momentum out of the market, but there's still some people who want to play along. It's just going to take a little while to shake off the damage that's been done."

Despite his aversion to trend-spotting, van den Broek said a broad perspective on the industry taking into account biotech's ups and downs not only from recent weeks, but its trials and tribulations over years can detect movement in a specific direction. The news is good.

"We're in the beginning of a very long-term 'up' trend," he said. *