By Jennifer Van Brunt

Editor

Last week's media splurge on promising new biotherapies for treating cancer has once again brought biotechnology center stage. Kicked into hyperdrive by the now famous article in the May 3, 1998, New York Times on Rockville, Md.-based EntreMed Inc.'s two anticancer agents, the hype has created an escalating feedback loop. All week, the media has been riveted by the news. It's spurred an incredible surge in the stocks of cancer-related biotech companies — both in price and volume trading. EntreMed's stock (NASDAQ:ENMD) more than quadrupled in value on May 4, and that was after it had settled down. In premarket trading on Instinet, the stock actually rocketed from a May 1 close of $12.063 to about $84.00 per share by market open on May 4. It closed the day at $51.813, an extraordinary one-day leap of 329 percent — and unheard-of in the biotech sector. Trading volume was 23.5 million shares, more than 350 times its average daily volume and almost twice as many as its 12.3 million shares outstanding.

Other cancer-related biotech stocks joined in the frenzy, too — some of them at the beginning of the week, others slightly later as the companies released their own news-of-the-moment or updates on work in progress. These included Magainin Pharmaceuticals Inc., of Plymouth Meeting, Pa., Sugen Inc., of Redwood City, Calif., Boston-based Boston Life Sciences Inc., Agouron Pharmaceuticals Inc., of La Jolla, Calif., Richmond, Calif.-based Onyx Pharmaceuticals Inc., New York-based ImClone Systems Inc. and Techniclone Corp., of Tustin, Calif. In fact, Techniclone's stock (NASDAQ:TCLN) experienced the heaviest volume trading on two days mid-week; on May 6, the stock traded 19.3 million shares, making it the most active stock in all U.S. markets. The company's average daily volume is 1.4 million shares, and it has about 54.7 million shares outstanding. The reverberations were felt as far away as Sweden, where Lund-based Oxigene Inc.'s shares soared for at least three consecutive days on the Stockholm Stock Exchange.

The hype has spawned an untold number of articles and commentaries in the press and by the broadcast media. And it's caused a great deal of concern among the research scientists and the companies involved. But their cautious warnings that these results are early-stage — and absolutely experimental in nature — were drowned in the deluge. There's already been some selloff in these stocks, however, and analysts fully believe there will be more as the message sinks in: All these research programs face major obstacles — and untold years of hard work — before they become useful therapies for cancer.

The last time biotechnology stocks stood so firmly in the public spotlight was probably in late 1995 and early 1996, when the first-generation genomics companies soared as investors enthusiastically bought into the tantalizing promises of that technology. Those firms — including Incyte Pharmaceuticals Inc., of Palo Alto, Calif., Human Genome Sciences Inc., of Rockville, Sequana Therapeutics Inc. (since then merged with Arris Pharmaceutical Corp., of South San Francisco, to form Axys Pharmaceuticals Inc.) and Salt Lake City-based Myriad Genetics Inc. — were set up to exploit the vast amount of information spewing forth from the Human Genome Project's mandate to sequence the entire human genome. There was never any doubt that the results of this project would forever change the face of drug discovery. And it already has.

Before that, it was the alluring promises of gene therapy that fired the imaginations of investors. In late 1993 and early 1994, they gobbled up those stocks, only to abandon them in late 1995 because the payoffs were too far down the road.

In all instances, the perception has far outpaced the reality. This phenomenon — in which investors binge on stocks of early-stage companies with exciting new technologies long before those technologies have turned into products — is repeating itself right now. Biotech analyst Wole Fayemi, of Irvine, Calif.-based Cruttenden Roth Inc., commented on this "new technology perception cycle" in a June 1996 report on genomics and gene therapy he prepared while at San Francisco-based Genesis Merchant Group Securities Inc. The technology and the companies are overhyped, then overbought. When reality sets in, they are oversold. But, over time, investors begin to gain a real understanding of the underlying technology — and its value — at which point the stocks settle down and start performing in a way that reflects the true growth rate of the company.

The stunning performance of the cancer-related biotech stocks has certainly heightened general awareness of the biotech sector again. But will that be enough to spark a real rally in the stocks? Certainly, the companies that are hoping to complete initial public offerings (IPOs) yet this spring are keeping their collective fingers crossed. Those that filed prospectuses with the Securities and Exchange Commission in the last several weeks could be especially well poised to take advantage of this current euphoria. Genzyme Corp.'s division Genzyme Molecular Oncology is one IPO-hopeful that apparently has decided now is the time to strike. The Cambridge, Mass.-based firm, which is focused on gene-based approaches to cancer therapy, kick-started its IPO prospectus in late April — exactly one year to the day since it first filed. And tiny GenVec Inc., located in Rockville, filed its IPO prospectus May 1. The company, which was founded by gene therapy pioneer Ron Crystal (now at Cornell University Medical Center, in New York), currently is focused on gene therapy for coronary artery disease and peripheral vascular disease. Its product — serendipitously enough — targets angiogenesis (new blood vessel formation). But unlike EntreMed's products, which are aimed at preventing angiogenesis (thus cutting off blood supplies to tumors), GenVec's is designed to induce angiogenesis, to deliver blood to tissues with inadequate blood flow.

If last week's hyperbole signals the beginnings of a prolonged rally in the biotech stocks, however, there's little indication yet from the overall sector performance. The Nasdaq Biotech Index, which currently tracks 100 biotech stocks, did indeed rise by a few points between May 1 and May 5 — from 329.16 to 335.39 — but this was a gain of less than 2 percent. And the next day, it had slipped to 330.74. The peak on May 5 wasn't even the highest this year: the Nasdaq BioTech Index hit 342.23 on March 19 and remained above 335 until April 7. But the peak on May 5 is still almost 11 percent higher than the beginning of 1998; the Nasdaq Biotech Index closed on Dec. 31, 1997, at a value of 303.10. The biotech stocks have been gaining momentum all year — though, at least until now, at a modest pace. The next few weeks will tell whether or not it's time for a real rally.

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