Biotech industry called sound, despite stock fall Analyst predicts rebound this year

May 05, 1992|By Liz Bowie | Liz Bowie,Staff Writer Bloomberg Business News contributed to this article.

Despite the market decline of biotechnology stocks early this spring, the industry is healthy and growing rapidly with a proliferation of small companies, David Webber, an analyst with Alex. Brown & Sons, said yesterday.

By the end of the year, he said, the stocks should be on the rebound since losing an average 30 percent to 35 percent of their value in the first four months of this year.

Mr. Webber's comments came as about 1,400 investors and representatives from 100 health-care and biotechnology companies gathered at the Stouffer Harborplace Hotel in downtown Baltimore for Alex. Brown's 17th annual health-care seminar this week.

Evidence of progress can be seen throughout the industry. It includes larger companies, such as Chiron Corp., of Emeryville, Calif., which said yesterday that it appears to be close to winning Food and Drug Administration approval for a new cancer drug, proleukin; and TSI, a Worcester, Mass., company that tests drugs and cosmetics, and has grown as the biotech companies it serves have grown.

Biotechnology companies, which raised $3 billion in financing last year, reveled in the growth. But reminders of the decline in stock prices were evident at the gathering.

"The implicit theme [of the seminar] is: 'Is this the bottom?' " Mr. Webber said.

He said the drop in biotech stocks this year was partly a market correction after a "buying panic" at the end of 1991. "People thought they had to buy anything that ended in 'gene' or had an 'x' in the name," he said.

The industry was further hurt by recent FDA questions about a drug developed by Centocor Inc. in Malvern, Pa., to treat septic shock, a fatal infection for 80,000 to 120,000 Americans every year.

Now that the drop has occurred, "I believe many of these stocks are bargain stocks," Mr. Webber said. "I expect some investors to be buying now to get ahead of the surge."

Russell Ray, managing director at Alex. Brown, said he thinks many investors are taking profits and selling health-care stocks to get into underappreciated cyclical stocks, which should rebound as the economy improves.

High-quality health-care companies should fare the best through the readjustment because there will be a flight to quality, Mr. Ray said.

However, he said some smaller, less-developed companies that would have sold shares to the public several months ago will have to find their financing elsewhere. And every company, especially those anticipating initial public offerings, will have to be more realistic in stock-price expectations, he said.

"Clearly, there's going to be some big winners, and some are going to strike out," he said. "We're in a period that's become more harsh than generous."

Nicholas Metcalf, chief executive of Issaquena Trust, a private fund based in Boston, said patience was key. "The industry is now in the process of growing up. It is emotional and adolescent . . . entering high school. We've got to be patient."

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