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Biotech's Longer Convalescence

The biotech sector has fallen, and it doesn't seem able to get up.

Despite an earnings season that has gone reasonably well, biotech stocks don't seem able to get off the floor. The Amex Biotechnology Index lost 4.3% last week and is now down more than 8% year to date after falling another 1.7% to 455.73 on Monday. The Nasdaq Biotechnology Index, which tracks a broader swath of the sector, including more small-cap stocks, lost almost 5% last week, and is down 10% for the year as of Monday's close.

An overall weak market and geopolitical uncertainty take some of the blame for biotech's malaise, for sure. But on a micro level, biotech firms can't seem to catch a break. For a sector that typically runs hot and cold, biotechs, right now, are downright frosty.

"The strategy these days seems to be sell good news, and sell bad news faster," said one frustrated biotech fund manager.

That has certainly been the game plan during second-quarter earnings season, so far. Genentech (DNA) kicked things off by meeting EPS estimates, reporting stronger-than-expected sales of its new cancer drug Avastin and raising 2004 EPS guidance (albeit still within analysts' current ranges). Investors took the news in and sold the stock.

Likewise, Amgen (AMGN), Chiron (CHIR), ImClone Systems (IMCL), Millennium Pharmaceuticals (MLNM), and Medimmune (MEDI) all met or beat consensus expectations for the second quarter, but investors were selling.

Only Genzyme (GENZ), which beat expectations for the quarter and raised its top-line sales guidance, has seen any significant buying this earnings season.

Of course, summer is typically a fallow period for biotechs, with the sector taking a breather until activity -- in terms of industry conferences and regulatory happenings -- picks up again in the fall. But this postearnings selloff has many market observers doubtful that the major indices will be able to recover and see green for the year.
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