Analysts are looking to clinical study results, as much as theyare to the FDA, for the major events that will movebiotechnology stock prices in 1993.

This could be welcomed by investors, following 1992 when badnews -- often in the form of FDA product rejections or delays --supplied most of the surprises. The effect was to bringbiotechnology stock prices back to earth early this year fromthe lofty levels they reached in 1991's hot market.

Analysts are not predicting a repeat of 1991, when stockssoared to heights that made their fall early this year that muchharder.

"A lot of investors are (now) a lot better informed ... maybe alittle skeptical," said Robert Peterson of Hanifen, Imhoff Inc. inDenver. "As they look at the long-term potential ofbiotechnology, I think they'll come back."

"I'm generally optimistic for 1993," said David Webber of Alex.Brown & Sons Inc. "Specifically, I'm hopeful the group canrebound. The reason it hasn't come back yet is that investorsare suffering from chronic disappointment syndrome. Thatmeans that at first you don't believe anything developed by abiotechnology company will get approved, you suffer amnesiaabout Amgen's success, and you're deaf to any positive news."

The biotechnology sector has come back a ways in recentmonths. The AMEX Biotechnology Index rose to 166.55 onThursday from 141.74 in the beginning of October, and theChicago Board Option Exchange BioTech Stock Index was up to156.72 on Thursday from 129.04 on Oct. 1.

Analysts are looking to positive results from clinical studies forthe events that could propel the sector early next year. Theleading candidate to provide that jolt is Synergen Inc.(NASDAQ:SYGN), which is expected to report positive Phase IIIresults on its Antril drug to treat sepsis, or septic shock. Thedrug has potential for much wider applications, promptingsome analysts to push estimates of potential sales well above$1 billion.

Study results are likely to be announced in early spring,although investors have already bid up Synergen's stock pricein recent months. It closed Thursday at $59.75, down $1 ashare for the day. "It's not a cheap stock right now," saidHanifen, Imhoff's Peterson. "But it will be the bell cow for thesector most of the first half of the year."

The downside risks are that the results could fall somewherebelow the high expectations raised by some analysts, or if theresults are delayed. "If we don't see anything by June, peoplewill be concerned," said Jeffrey Casdin of Oppenheimer & Co.

Other study results that might buttress support forbiotechnology could come from a comparison study ofGenentech Inc.'s tissue plasminogen activator (t-PA) Activaseand competing streptokinase, both used in combination withheparin to treat the effects of heart attacks. This costly studymight at long last put to rest the controversy over the merits ofthe respective products, according to Linda Miller withPaineWebber Inc.

Regulatory Perspective

Regulatory events, such as the product approvals that havetraditionally powered the sector's performance, could supportan upward trend for biotechnology stocks in 1993, althoughmany of the pending product applications will be left over fromthis year.

If FDA approves Centocor's Centoxin, this "would encouragepeople" by providing a comeback story, Casdin said. It followsthe FDA's rejection last April of the anti-sepsis drug, whichprompted Centocor to undertake another Phase III study andto establish a partnership with Eli Lilly and Co.

"The overall opportunity is diminished" for Centocor, saidPaineWebber's Miller. It now faces the likelihood of competingproducts for Centoxin to treat sepsis and the reality of sharingthe product's potential profitability with Lilly. Centocor willalso need to kick another product in development over to Lillyif Centoxin is not approved in 1993.

New Money

One note of caution for some analysts -- and a harbinger of thesector's recovery for a few -- is a resurgence in filings forpublic stock offerings. "Deals are being filed every day," saidOppenheimer's Casdin. He predicted a potential glut of offeringsthat could spell indigestion for the sector into late 1993.

Stuart Weisbrod of Merrill Lynch Capital Markets concurred,saying that the likely load of new financings is a factor in hisbearish view for early 1993. "Supply and demand will keep acap on the stock prices."

Estimates of how much funding the new offerings could raise inthe first quarter run as high as $1.5 billion, a pace that ifsustained for the entire year would surpass frenzied 1991,when $3 billion was raised.

A New Deal in Washington?

A new occupant in the White House brings new focus on publicpolicy issues that will help shape the industry. Most analystssee good tidings from a more activist Clinton administrationthat wants to encourage investment in high technology andtalks of biotechnology as a promising source of new jobs.Policies to spur investment in high technology, such as taxincentives, look like winners for the still cash-hungrybiotechnology industry.

Clinton's lead in the presidential campaign polls may havedampened health care stocks last summer, but that viewappears to have changed. "The uncertainty brought by Clinton'slead was worse than the (later) reality he had won," said DavidStone of Cowen and Co. in Boston. He noted that all of theroughly 15 stocks he follows have risen since the Novemberelection.

Analysts also believe that biotechnology's more effectiveproducts will escape the brunt of any health care costrestraints, which are more likely to target price jumps onexisting and "me-too" medical products than the breakthroughproducts that biotechnology companies aims to market.

"I think biotechnology companies can escape all policyinitiatives," said PaineWebber's Miller.

Clinton's health care reforms are more likely to first expandaccess to medical coverage to more Americans, Stone said.Coupled with an expected doubling of the U.S. population overage 50 during this decade, it is easy to see how biotechnology'smarket will increase, he said. In addition, Clinton will be waryabout moving a health care policy that could hurt job creationby small businesses.

Pharmaceutical Companies Go Shopping

With big drug companies finding it tougher to pump up priceson existing products and many facing "a barren productpipeline," they are more likely to shop the biotechnologycompanies for products or whole companies, said Peterson ofHanifen, Imhoff.

"They've got a lot of cash flow and the need to chase someinnovative products," Miller said. She predicted, "There'll bemore deals like Immunex's," which this month announced plansto bring in American Cyanamid as an equity partner. Immunexis to receive rights to a product line and a source of assuredfinancing for product development.

After this year's relative drought for public financing ofbiotechnology, there may be more companies wanting to strikea deal. Merrill Lynch's Weisbrod said his research shows thatabout 30 publicly traded biotechnology companies have cashpositions that are less than one year's expected losses. Still, heexpects that most mergers and acquisitions in the industry nextyear will be made among smaller companies to achieve acritical mass, by big companies buying up the small fry

-- Ray Potter Special to BioWorld

(c) 1997 American Health Consultants. All rights reserved.

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