Wicked dive by biotechs may be nice opportunity

INVESTING

April 09, 2000|By Bill Atkinson

The stock market's recent dive hit the biotechnology industry like a nasty virus. But experts say it might be perfect timing to scrape up a few of these stocks for the long haul.

Of the sectors that have suffered from the Nasdaq's plunge, biotechnology has been among the hardest hit. Stocks that shot up 80, 90 and 100 percent from Jan. 1 to March 7 have fallen 40, 50 and 60 percent, wiping out billions in market value.

The Nasdaq biotech index, which tracks 203 biotechnology stocks, plummeted 30.6 percent from its March 7 high. And experts say there are deals to be picked up even though stocks rebounded somewhat late last week.

"There are a lot of investment opportunities right now," says Carl L. Gordon, general partner at New York-based OrbiMed Advisors Inc., which manages the Eaton Vance Worldwide Health Sciences Fund. "The best time to buy is when things are low. Psychologically it is always tough. -- You get scared. If you can get past this and invest when things are cheap, you can get some great investments."

But investing in biotechnology companies takes patience and a strong stomach. Many companies still don't make money, and products can take years to come to market.

What's more, stocks run up $10, $20 and $30 in a day and plunge even faster.

ImClone Systems Inc., a New York-based company that develops vaccines to treat cancer, saw its shares more than quadruple in just two months, from $39.625 on Jan. 1 to a high $171.9843 on March 7. But after last week's sell-off, the shares are down 45 percent.

Shares of PE Corp.-Celera Genomics Group, a Rockville-based company racing to complete a map of all human genes, nearly quadrupled from $74.50 Jan. 1 to $276 Feb. 25. The shakeout has driven the stock down 53 percent.

"This sector in general is extremely volatile," says Emily Hall, an analyst at Morningstar Inc., a Chicago-based company that follows the performance of mutual funds. "There is a lot of emotion; there is a lot of hype. These stocks tend to rise and fall on bits of news and a lot of emotions."

The stocks began heating up about a year ago with announcements of higher revenue and new products in the pipeline. Then they caught fire in December when the Human Genome Project, an international effort to map the human genome, said that it mapped a single chromosome -- an industry breakthrough.

Investors dumped pharmaceutical stocks such as Pfizer Inc. and Merck & Co. and rushed into biotechnology companies, driving shares up.

But stocks began tumbling and, on March 14, President Clinton and British Prime Minister Tony Blair helped burst the bubble when they called for the human genetic code data to be made freely available to researchers. The announcement stunned investors, who began dumping biotechnology companies that sought to profit by selling such information.

About the same time, the technology sell-off began and the biotechnology stocks have been reeling, even though they have made some gains since Tuesday's big drop.

Despite the volatility, many analysts still like the sector and think there are plenty of companies worth buying. Many companies, they say, are at the forefront of science, trying to find ways to cure cancers, Alzheimer's and infectious diseases.

Biotechnology is "on the threshold of becoming one of the key industries of the future along with the Internet and telecommunications," says Dan Gillespie, senior portfolio manager in charge of the sector funds at Rockville-based Rydex Mutual Funds. "More than 20 years ago, virtually no products were coming out of the sector, but in the late '90s -- this research and development is finally coming to fruition."

Gillespie oversees the Rydex Biotechnology Fund, and he and his team invest in more established biotechnology companies. One of his favorites is Amgen Inc., which has drugs in the pipeline to treat arthritis and prostate cancer and has a potential blockbuster drug in trials that stimulates red blood cells in bone marrow.

"It is the leading biotech company in the country," Gillespie says.

He also likes MedImmune Inc., a Gaithersburg company that has developed a drug to treat respiratory infections in infants as well as drugs to treat psoriasis and cancer.

Hall advises investors who want to own biotechnology stocks to stick with mutual funds. That way they can own more companies and reduce risk. There are just five pure biotechnology funds, she says.

The biggest is the Fidelity Select Biotechnology Fund, which returned 77.72 percent last year, according to Morningstar.

The other funds include Dresdner RCM Biotechnology N, up 111.48 percent last year; Franklin Biotechnology Discovery A, up 97.91 percent; Rydex Biotechnology, up 95.52 percent; and Monterey Murphy New World Biotech, up 20.74 percent.

Gordon of OrbiMed says he's taking the bumps in stride.

"We are not going to throw in the towel," he says. "There is a lot of value there."

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