Biotech stocks show indication of rebounding

Leaked news of results from new-drug trials provides an impetus

Amex index up 5% for week

Another boost could come if related firms have good earnings, analyst says

April 15, 2002|By Julie Bell | Julie Bell,SUN STAFF

Biotechnology stocks, down sharply since late last year because of a raft of bad news, appeared to begin a comeback last week as clinical trials results were leaked in advance of a major scientific meeting.

The Amex Biotechnology Index, which measures the performance of a cross-section of biotech stocks traded on various exchanges, rose nearly 5 percent after hitting a six-month low of 450.14 Tuesday.

One impetus for biotech's comeback: a Robertson Stephens research note, released Friday, that said leaked clinical trial results for a Millennium Pharmaceuticals Inc. drug showed "a powerful response rate" against myeloma, or bone marrow tumors. The results are early data from a drug that must undergo more testing.

Such rebounds have become a virtual rite of spring for biotechnology stocks, many of which represent investments in early-stage companies with little revenue. Their shares tend to trade on news of clinical trial results, few of which are released until major scientific meetings begin in mid-April.

"Traditionally, the first quarter and into April is tough on the biotech index," Robertson Stephens analyst Edward "Ted" Tenthoff said. This year has been worse because "we have had nothing but bad news."

The downhill run pushed the Amex index down 27.2 percent from a Nov. 26 high of 618, before beginning to climb again Wednesday. It has dropped 23.6 percent since Nov. 26 and nearly 19 percent for the year. In comparison, the Dow Jones industrial average has gained 1.7 percent this year, while the Standard & Poor's 500 index has lost 3.2 percent.

Biotech's slump worsened late last year when New York-based ImClone Systems Inc. announced that the Food and Drug Administration had rejected its cancer drug Erbitux. A drumbeat of other negatives followed, including Guilford Pharmaceuticals Inc.'s revelation that the FDA had rejected expanded uses for its brain-cancer treatment; Corixa Corp.'s announcement that its cancer drug Bexxar would not be approved without more test data; and lowered earnings or revenue expectations from Bristol-Myers Squibb, Cubist Pharmaceuticals Corp., bioscience tools company Millipore Corp. and others.

A Robertson Stephens analysis shows that the Amex Biotechnology Index's first-quarter loss averaged 9.4 percent in 1992 through 2001. But this year, the bad news spurred a first-quarter decline of more than 13 percent, a decline that continued into this month.

If biotech follows its usual pattern, things may be looking up - at least for a while. Tenthoff said biotech stocks usually hit bottom by mid-April, when news from one of the first big scientific meetings - the American Association for Cancer Research - begins percolating through the market. This year's meeting was held last week. In addition, data scheduled to be released at the American Society of Clinical Oncology meeting next month - including results for the Millennium drug - began to leak out last week.

Companies that provide scientific tools such as animals for drug testing, chemistry kits and protein analyzing machines also may provide a lift for the market if their earnings reports are good in two to three weeks, analyst Paul Knight of Thomas Weisel Partners said.

Even big pharmaceutical companies with weak prospects for new drugs could provide some uplifting news for tools companies, Knight said. That's because the pharmaceutical companies will have to continue spending on research and development, meaning they will be in the market for more supplies.

"For the life-science tool guys, it'll show pharma spending and biotech spending is still in place," Knight said.

Still, some biotechnology stocks will have a long comeback. For them, the recent hammering amounts to piling on, coming on the heels of news that sent individual shares tumbling.

Shares of Human Genome Sciences Inc. have lost 54.5 percent, from $40.01 on Dec. 6 to Friday's close of $18.20, since the company announced disappointing test results for one of its drugs Dec. 7. MedImmune Inc. has endured doubts about its planned acquisition of Aviron, helping to push shares down 18.5 percent - from $44.10 before the deal was announced Dec. 3 to $35.91 at Friday's close.

Tenthoff and stock analyst Jill Kiersky of mutual fund research company Morningstar Inc. see a silver lining. For Tenthoff, the declines make for bargains. His picks include Rockvilles' Human Genome and Celera Genomics Group.

But Kiersky said many biotech stocks deserved the drubbing. Investors, she said, had become so enamored of the potential revenues from drugs in early-stage human tests that they had lost sight of their inherent riskiness. Most drugs in early-stage testing eventually fail.

"Personally, I think they're bringing them back to more reasonable levels," she said of investors and biotech stocks, "especially for companies such as Human Genome Sciences that don't have any near-term revenue prospects. Their revenues are much further out, and the risk of failure is higher in [earlier] human testing. ... They're coming down to valuations that take that risk into account."

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