Traders and analysts predicted that buyers will come back tobiotech stocks soon -- perhaps even this week -- despite theacross-the-board correction that shook the sector on Friday.

The BioWorld stock list showed that the sector has given backnearly all its gains for the quarter, closing Friday about 3percent above the third-quarter's close (see Page 2).

The Dow Jones Industrial Average of 30 leading stocksplummeted 120.31, to close at 2,943.20, the biggest point dropsince the "mini-crash" of Oct. 13, 1989.

Biotech companies that so far have held onto some gainsinclude Synergen Inc., still more than $9 above its Sept. 30price after tumbling $8.75 on Friday to $48.50. Alza Corp.(AMEX:AZA) also closed more than $9 above its Sept. 30 pricedespite giving back $4.38 on Friday. MedImmune Inc.(NASDAQ:MEDI) plummeted $10.63 Friday to $38.50, still morethan $12 above its close last quarter.

Idexx Laboratories Corp. (NASDAQ:IDXX) gained 25 cents andCollagen Inc. (NASDAQ:CGEN) dropped only 25 cents on Friday.

"This will all be over this week," said Peter Drake, an analystwith Vector Securities International Inc., who nevertheless seessome difficult days early in the week.

The market's fall doesn't change the positive fundamentals ofthe biotech group, the low interest rate environment, or thefact that growth fund managers have to put their moneysomewhere, said Drake and Michael King, a broker at Alex.Brown & Sons Inc.

King added that he was surprised that more investors haven'tpicked up on the fact that the Food and Drug Administration'sproposals to speed clinical trials will reduce risk for biotechcompanies. (See Friday's BioWorld.) "You can't understate thesignificance of this," he said. "This is a crucial bit of informationthat should be positive for this group."

The sector's decline was sparked by last Tuesday's news thatan FDA advisory committee recommended against the use ofCD4 as a primary clinical end point in approving AIDS drugs,driving down shares of Immune Response Corp. stock(NASDAQ:IMNR). Synergen also announced that it was droppingPhase III testing of Trofak to treat diabetic leg ulcers.

"The news wasn't that negative, but it was negative enough togive people pause," said King. "But if you pulled the plug onSynergen because of that, you own Synergen for the wrongreasons."

The kind of volume seen on Friday can only be generated byinstitutional players, Drake said. Institutions came in quiteheavily by lunchtime, said Sarah Gordon, an analyst withAmerindo Investment Advisors Inc.

Drake and Sutro & Co. broker Richard Bock both predicted thatfund managers could become big sellers to lock in their year-end bonuses, which are based on profit performance. "There'sno incentive for them to wait and get hurt," Drake said.

In addition, a lot of small players could panic and sell mutualfunds, said Gordon. "We haven't even seen the potential effectsof weekend and Monday redemptions," added Drake, "so thereare another few days of waiting and watching."

Further downward momentum also could be generated byinvestors who bought in at the top of the market and nowsuddenly have astronomical tax losses, said Bock. If they decideto sell, the market could drop more.

Despite the negative short-term potential, insiders remainoptimistic. Art Pancoe, senior managing director at Bear Stearnsin Chicago, who specializes in pharmaceutical stocks, said thecorrection won't last long, at least not for the good stocks. "Inthe long range, I think it's healthy," Pancoe said. "The realproblem is there hasn't been enough discretion by buyersbetween who has products and who doesn't."

The sector survived a fall in the second quarter, losing 9percent as a group, before rebounding smartly to gain 35percent last quarter.

"My reaction was to go in and buy more stock," said JacquelineSiegel, an analyst at Hambrecht & Quist. "This isn't a long-termtrend, this is a breather."

-- Karen Bernstein BioWorld Staff

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