Biotechnology stocks are at a critical juncture, with littleencouraging news on the horizon and the prospect thatcontinued price declines will cement the sector's third bearmarket since 1983.

Analyst Denise Gilbert told BioWorld that stock prices are downto the trend line in Smith Barney's 10-year biotech index.Prices twice have fallen below the line for extended periods,from late 1983 through 1985, and from mid-1987 to 1991.

"So now the question is, if we're down to the mid-line, is this atemporary blip in the third up-cycle or the start of the thirddown-cycle," said Gilbert.

The numbers are sobering. The 55 biotech companies Gilbertfollows are down 55 percent on average from their mid-January highs. Thirty companies are selling at two times cashor book value. Twenty-two of 35 third-tier companies areselling at two times cash or less, and nine of those are selling atone to one-and-a-half times cash. On average, companies thatwent public in the past 15 months are selling at or below theirIPO prices.

It's not unheard of for new IPO companies to trade down totheir cash value, said Sutro & Co. analyst Margaret McGeorge,who hopes that the sector is within 10 percent to 15 percent ofthe bottom.

But analysts see little upcoming news that will lure investorsback to the sector.

When Centocor Inc.'s Centoxin didn't get FDA approval, themarket's last hope for the group was dashed, said VectorSecurities International's Peter Drake.

The remaining product approvals on the FDA's docket this yearare for relatively small markets. Approval of recombinantFactor VIII for hemophilia might bring some glitz back to thegroup, given the nature of the disease and the coverage it'slikely to get in the mainstream press. But in reality, it's a smallproduct, and both Genentech Inc. and Genetics Institute Inc.will only get royalties, having licensed their versions to CutterBiological/Miles Inc. and Baxter International, respectively.

"People are looking for earnings and not clinical trial progress,so there's very little this industry has to offer now, eventhough some stocks are cheap," said Jay Silverman of NomuraResearch Institute. "I'm telling people there's no reason to runout and buy stocks today. Investors have six months to a yearto be aggressive, and they should be very, very selective."

Similar advice can be heard almost everywhere on Wall Street.As a result, most analysts' lists of "buy" recommendations arelimited and fairly conservative. No one is telling investors tobuy recent IPOs. Of eight analysts contacted by BioWorld, fivehad Amgen Inc. (NASDAQ:AMGN) on their list and four hadGenzyme Corp. (NASDAQ:GENZ). Other companies werementioned less often.

Many companies, however, are facing the need to go back tothe financing well fairly quickly to keep their developmentprograms on track. "In 12 months, many companies may be inserious need of money, so the question is, when is the nextwindow of opportunity," said Gilbert.


Peter Drake, Vector Securities International

Buy: Applied Biosystems, Amgen, Curative Technologies,Genentech, Genzyme, Idexx, Biogen, Immunex, Synergen,Molecular Biosystems

Denise Gilbert, Smith Barney

Buy: Amgen, Genzyme, Genentech, BiogenSpeculative Buy: Cygnus

David Stone, Cowen & Co.

Buy: Amgen, TSI Corp.Speculative Buys: Cephalon, Scios, Vertex, Matrix, ProteinDesign Labs

Margaret McGeorge, Sutro & Co.

Buy: Genzyme, Cambridge Biotech

Linda Miller, PaineWebber

Buy: Amgen, GenzymeSpeculative Buys: Centocor, Corvas, Athena, ImmunoGen

Jay Silverman, Nomura Research Institute

Buy: Chiron, Synergen, Amgen, Immunex

Mark Simon, Robertson, Stephens

Buy: Synergen, Chiron, Immune Response


Despite the Good Friday respite from trading, the AMEXBiotechnology Index fell nearly 12 percent last week to a lowof 143.96. The index, which includes both Centocor Inc. andXoma Corp., has not seen its base of 200 since March 18.

-- Karen Bernstein BioWorld Staff

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