Biotechs Get Bashed Again, but Backers Aren't Backing Down

For some, Tuesday saw another sickening slide in a volatile sector. For others, it was the day biotech simply became buy-o-tech.

Companies spanning the biotech world -- from genomics to monoclonals to antisense and gene therapy, from the mighty Amgen (AMGN Quote) to the tiniest Magainin (MAGN Quote) -- contributed Tuesday to the sector's biggest one-day dive in months, prompted by government calls for cheap access to a growing mountain of genetic data. The Nasdaq and Amex biotech indices each dropped 13%.

The selloffs, topping 30% in intraday trading in some cases, appeared as indiscriminate and therefore as baffling as the huge run-ups that preceded them, experts say. After all, it had been known all along that data from the Human Genome Project -- the giant public-private effort to map the human genetic makeup -- was slated for release to researchers in coming years. And that had biotech analysts cautioning investors not to sell first and ask questions later, despite the weeklong slide in the once-hot stocks.

Political effect

Tuesday's selloff apparently was prompted when President Clinton and British Prime Minister Tony Blair called human gene mapping "one of the most significant scientific projects of all time" and said proceeds of the project should be freely available.

Companies hard-hit included Incyte Pharmaceuticals (INCY Quote), off 53 1/2, or 27%, at 143 1/2; Celera Genomics (CRA Quote), off 41 3/4, or 22%, at 147 1/4; and Human Genome Sciences (HGSI Quote), off 29 3/64, or 19%, at 123 33/64. All of those firms are mining and selling human genetic data to big drug companies to make new drugs.

But oddly, companies that could benefit from easy access to data, such as drug developers Vertex Pharmaceuticals (VRTX Quote), British Biotech (BBIOY Quote) and Cephalon (CEPH Quote), also took serious hits, dropping 15%, 17% and 15%, respectively.

James Fiore, president of the Boca Raton, Fla.-based Life Science Group, a boutique biotech investment adviser, says that's evidence that "a good portion of trading is from people who know very little about what they are buying and selling."

'Irrelevant'

Despite the selloffs that have taken the major sector indices some 30% off their highs of this month, biotech's fans remain steadfast.

"It's irrelevant," Eric Hecht, biotech analyst with Merrill Lynch, says of the U.S.-U.K. statement. Hecht predicts the sector will recover and tells clients to "buy a couple of the high-quality names that are falling in the downdraft," such as Medimmune (MEDI Quote), off 12% Tuesday, and Idec (IDPH Quote), off 10%.

Others were even more opportunistic. Hey, if your local Wal-Mart is having a 30%-off sale, why ask why?

"There are three options in a market like this," says Sam Isaly, partner in OrbiMed Advisors, a New York-based biotech fund manager. "Sell everything. Do nothing. Or buy. We chose the latter."

Isaly, a buyer of stocks including GelTex (GELX Quote) and Pathogenesis (PGNX Quote), is a biotech believer. While hype and biotechnology often go hand in hand, the 25-year-old industry does have a few things going for it, like, increasingly, profits.

The P-word previously almost never fit into the invest-in-biotech equation, except for industry granddaddies like Amgen, Chiron (CHIR Quote) and Genentech (DNA Quote). Now Isaly predicts that nearly three dozen more biotechs will report profits in 2002. That's in an industry where four out of five show losses.

The Longer View

Also, free access to genetic data "makes biotech businesses cheaper and more efficient to operate," says Fiore, who recommends stocks including Genzyme (GENZ Quote), Chiron, Vertex and Creative Biomolecules (CBMI Quote), all of which are developing new medicines or vaccines.

Others voice support for genomic data-mining companies that will face competition from wider public access to genetic data, such as Celera, Human Genome Sciences and Incyte. That's because those companies already have built a market selling data to the dozens of drug companies falling over each other to find and patent new medicines -- long before the Human Genome Project files become public.

"We've known for some time the raw data would become available through the Human Genome Project," says Dennis Harp, biotech analyst with Deutsche Banc Securities. "And drug companies are still entering into collaborations with Incyte" and others.

"I don't think this selloff will last," adds Harp, whose bank has advised Incyte in recent years. "Investors will recognize that there is considerable fundamental value in the sector."