Oppenheimer & Co. analyst Jeffrey Casdin said publicly onMonday what many biotech stock watchers have been thinking:"Time to take some chips off the table."
according to Casdin, "We now see unmistakable signs of ablow-off coming in the biotech sector." With hot money nowconcentrating in biotech, some event will occur that "willbring the festivities to an end."
Casdin's remarks follow Alteon Inc.'s spectacular showing lastFriday, when the company's stock rose from its Thursdayinitial offering price of $15 to close at $28.75. Monday itclosed at $26, down $2.75.
Hot money "has driven valuations relative to the fundamentalsof biotech ... to levels never seen before," Casdin wrote, andcreated price volatility he hasn't seen since 1967. Casdin citedSynergen Inc., with a $1.5 billion market valuation, and ImmuneResponse Corp., with a valuation of nearly $1 billion, as primeexamples.
Nevertheless, Casdin said the initial public offering windowwill remain open.
Richard Bock, a broker at Sutro & Co., said the market is readyto implode. In his 36 years as a broker, Bock said, he had neverseen a situation in which companies were able to follow an IPOwithin a few months with a secondary offering.
"One day everybody is going to call their broker and say 'sell'and there's going to be nobody to sell it to," Bock predicted. "Ifmost institutions already own 55 percent of these companies,who are they going to sell it to? People forget how illiquidthese stocks are when they come down."
Michael King, a broker at Alex. Brown & Sons, told BioWorld,"We're near a blow-off phase in the market." But King said hedoesn't foresee a sectorwide correction such as the one thatoccurred in 1987-88. "I'm of the opinion that companies willcorrect themselves individually, rather than as a group."
The market survived other bearish predictions earlier thisyear. Rumblings were heard in early August after SomatogenInc. closed at $25.75 after completing an IPO at $19. And themarket dipped only briefly after Morgan Stanley analystMichael Sorell said in September that it was time to take somemoney off the table. -- Karen Bernstein
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