The rapid maturity and increasing value of the biotechnologysector was demonstrated Tuesday by announcements fromboth the Chicago Board Options Exchange (CBOE) and theAmerican Stock Exchange (AMEX) of proposed indexinstruments based on biotechnology stocks.
The exchanges have filed with the Securities and ExchangeCommission for permission to introduce options trading in theirrespective indexes. "It is a clear sign that biotechnology is alegitimate industry, and that the capitalization is substantialenough that they can create an index for it," said Mike King, abroker at Alex. Brown & Sons.
Options traders acquire the right to buy or sell indexinstruments at a specified price by an expiration date, based ontheir expectations for the actual index value at settlement.
The AMEX index is based on 15 stocks. Five of the 20 CBOEstocks are medical technology and health care deliverycompanies rather than biotechnology companies astraditionally defined.
The AMEX has calculated an initial base for its index using theclosing stock prices from Oct. 18, 1991. Weights are calculatedby taking $10,000 of stock from each company and dividingthe resulting number of shares by 10,000.
The total of these weighted stock values was assigned anarbitrary index value of 200 on Oct. 18. By the close of tradingon Monday, the AMEX Biotechnology Index had increased about17.4 percent to 234.72.
AMEX will rebalance the number of shares in each stock byrecalculating the weights every quarter. The CBOE said itsprice-weighted BioTech Index may be modified at times "toreflect changes in the biotechnology sector."
Holders of the underlying stocks, such as portfolio managers,frequently use options to hedge risk.
"If I get any indication that the market might take a tumble,"said King, "I can hedge my accounts using that index withouthaving to dump stock, which I would rather not sell, to lock ingains. It might even lead to wild speculation because peoplemight have some bravado -- which they might not otherwisefeel -- because the index gives them some downsideprotection."
Approval for the AMEX index should take about three months,said Nate Most, vice president for new products development.The CBOE filed with the SEC on Dec. 27.
Proposed companies for the AMEX index are: Amgen Inc.,Biogen Inc., California Biotechnology Inc., Centocor Inc., ChironCorp., Cytogen Corp., Gensia Pharmaceuticals Inc., ImmuneResponse Corp., Immunex Corp., Immunogen Inc., MedImmuneInc., Mycogen Corp., Synergen Inc. and Xoma Corp.
Proposed listings for the Chicago Board are: Biogen, Centocor,Chiron, Enzon Inc., Epitope Inc., Genetics Institute Inc., Gensia,Genzyme, Greenwich Pharmaceuticals Inc., Immune ResponseCorp., Immunex Corp., Invacare, Ivax, The Liposome Co. Inc.,Nellcor, North American Vaccine Inc., St. Jude Medical, ScimedLife Systems, Summitt Technology and Xoma.
-- Kris Herbst BioWorld Washington Bureau
(c) 1997 American Health Consultants. All rights reserved.