Biotech shares fell broadly again on Tuesday, continuing aretreat in the past several days toward the bottom of thesector's recent trading range.
The basket of 15 stocks in the AMEX Biotechnology Index,which closed at 186.26, slipped closer to the floor that seems tohave been established in the 182-184 range since the indexbegan in October.
Among individual shares, Immunex Corp. has fallen $6 to$46.75 in the past four trading sessions. Chiron Corp. is down$4 to $47.50, Synergen Inc. is off $3.62 to $49.13, and ImmuneResponse Corp. has given back $3.75 to $26.25. BellwetherAmgen Inc. has fallen $1.75 to $63 during the period.
The downturn is being led by institutional investors. Problemsspecific to the group include lack of positive news, a surfeit ofnew stock issues and sales by momentum players. Moregeneral issues affecting growth stocks are the cyclical rotationinto economically sensitive stocks and rising interest rates.
"This is a sanity check," said Sutro & Co. analyst MargaretMcGeorge. "There was a sense of invincibility in the group, andpeople forgot the risks. Then there was a succession ofsetbacks: U.S. Bioscience, MGI Pharma and the fate of(Centocor's) Centoxin. That brought to bear the fact that evenproducts in late-stage development can encounter problems.Setbacks, whether developmental or regulatory, are part of thecost of doing business."
The behavior of momentum players has also affected thesector. "They were very aggressive buyers in December andJanuary, but have turned into net sellers in February andMarch," said analyst Peter Drake of Vector SecuritiesInternational Inc.
There have also been net redemptions from biotech and healthcare funds, a move that began in February and accelerated inMarch, Drake added.
Finally, Drake said, "There's an environment where less moneyis being committed to the group, but there's a large supply ofnew issues sopping up the capital that is being allocated."
It's not just biotech stocks that have declined, but growthstocks in general, said Steven Resnick, senior investmentstrategist at Cowen & Co. "Many growth stocks have donerelatively poorly in the past couple of months as investors'attention has focused on economy-sensitive stocks, based onreported improvements in economic statistics. Biotech stocksare like super-growth stocks, so they show the effects more."
Investors are taking very handsome profits made on growthstocks in the past two or three years, Resnick said, and are nowbuying stocks that haven't done well in that period and nowlook cheap.
"A second issue that has affected a number of institutionalinvestors' lack of enthusiasm is that short- and long-terminterest rates have been moving up since December," saidDrake. "That's a very important, but not completely appreciatedfactor influencing institutional investors. The interest rateenvironment affects how far out in the future an institutionalinvestor is willing to look for earnings."
But several observers believe the bottom may be near.
"Our view in February was that people would get theirportfolios realigned by the end of this quarter," said Drake.
In mid-March, U.S. passenger car sales were off 6.9 percent,according to figures published on Tuesday, said Michael King, abroker at Alex. Brown & Sons. "So that may mean the end ofthe cyclical rotation if people interpret those figures to meanthe economy is weak. Most of the pharmaceutical companieswere up, so people did migrate back to the big drugcompanies."
"Stocks that have corrected significantly are close to thebottom, unless there's bad news specific to the company,"McGeorge said.
But even if the sector has bottomed, it may take awhile torebound.
Declining prices have taken a lot of the risk out of the group,said technical analyst Stanley Weinstein, editor and publisherof The Professional Tape Reader. Weinstein put a "sell" on thegroup in December. "But even those stocks that have cleanedout nicely still haven't formed bases, so it's too early to buy.And in some individual cases, there will still be serious selling."
"The sector will probably drift for a bit, then hopefully movehigher on events and fundamentals," said Drake. "We haven'thad a lot of events, and the sector needs another success. A lotof people are keeping their fingers crossed that Centoxin willbe that success."
Centocor Inc.'s drug for treatment of gram-negative sepsis hasbeen awaiting final FDA marketing approval since achievingadvisory committee support in September. The stock closed at$32.13 on Tuesday, down 38 cents, and is off $1.12 in the pastfour sessions.
-- Karen Bernstein BioWorld Staff
(c) 1997 American Health Consultants. All rights reserved.