Biotechnology industry laid low by investor chill Poor Synergen test results hurt stocks

February 23, 1993|By Liz Bowie | Liz Bowie,Staff Writer

In what analysts said could lead to a capital crunch for the industry, biotechnology stocks suffered a dramatic decline yesterday after an announcement by Synergen Inc. that its most promising drug, Antril, wasn't as effective as first predicted.

The stock of Synergen, based in Boulder, Colo., lost 68 percent of its value yesterday, dropping $28.625 a share, to $13.50. More than 21 million shares changed hands, making it by far the most widely traded stock yesterday.

"I have never been able to understand the reaction of the stock market," said Jon S. Saxe, president of Synergen. "We do not feel that the intrinsic value of the company has changed."

The decline extended further as the news frightened off investors in the high-risk industry and pushed the biotech index of the Chicago Board Options Exchange down 17 percent for the day. The index measures the stocks of 20 biotechnology companies.

"There is absolutely no investor confidence," said Evan Sturza, at Sturza's Medical Investment Letter.

Synergen's announcement surprised many analysts who had predicted that the results of the company's final phase of testing would show it to be effective and that the drug would translate into millions of dollars in revenue.

Earlier tests on a smaller group of patients with sepsis -- a bacterial infection that kills an estimated 100,000 people a year -- showed mortality rates dropped significantly for those using Antril. Some analysts had expected good news about Antril to help boost all biotech stocks.

But yesterday, analysts said the company's bad news came on top of concern over the effect of the Clinton administration's health care package and other recent stumbles by biotech companies. The compound effect, they said, could make investors reluctant to bet on biotech companies until they have completed final testing, or so-called Phase III clinical trials, and were on their way to Food and Drug Administration approval.

If analysts' fears become reality, biotech companies could lose a major source of capital in the industry's crucial early period of testing. Taking a drug through the stages of the clinical trials is the most expensive part of getting a drug to market.

"How are you going to sell Phase II promise anymore?" said Edmund Debler with Mehta & Isaly in New York.

Franklin Berger, an analyst with Josephthal Lyon & Ross in New York, said investors had believed they could make reasonably safe investments by looking at results of the first two phases of testing.

But earlier this year, Centocor Inc. announced that its drug, also for treating sepsis, had not proven effective in final testing in the United States and that it was removing it from the European market.

Mr. Debler said he believed the biotech market could remain depressed for three to six months, at least until the president's healthcare plan has been made public and there was some sense of whether biotech companies will benefit.

But he also is concerned that it could become more difficult for the industry to raise money.

Mr. Berger went even further. "There well may be a need to be a change in the way they do business," he said, adding that biotech companies might slowly reduce their research and development budgets and look to private sources for capital as well. In addition, he said, the companies might have to go more slowly than they wish.

"It will take some of the speculative fire out of the industry," he said.

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