Is the biotech sizzle fizzling?

Investors' insatiable demand for biotech stocks may be thinning, judging by the last week's 20%-plus decline in the

Amex Biotech Index

and Monday's broad biotech selloff. But few observers are willing to call a top on the mini-bull market in biotech shares, and it appears the only worriers for now are company executives who fear they see the funding floodgates closing on their cash-hungry outfits.

Shares in dozens of biotechs declined Monday, along with the main indices. Biotechs taking a beating included

Chiron

(CHIR) - Get Report

, down 14 3/16, or 24%, to 45 3/4;

Repligen

(RGEN) - Get Report

, down 2 13/16, or 19%, at 11 5/8; and

Human Genome Sciences

(HGSI)

, down 19 15/16, or 12%, at 152 9/16. The

Nasdaq Biotech Index

fell 7.6%.

Yet most investors in the sector remain positively sanguine, saying one might expect a selloff after the wild buying spree that ensues after a long-languishing sector is rediscovered.

Glass Half-Full

"If shares move up too quickly, you tend to get random buying of the sector. It's quite natural to see a pullback," says Michael Bourne, fund manager with

Finsbury Asset Management

in London, which has some $500 million invested in biotech and other technology stocks. "We view today's setback as positive. It may carry on for a few weeks."

Upstairs, Downstairs
Nasdaq Biotech Index's volatile 2000

Source: BigCharts

Like many biotech fund managers and analysts, Bourne reiterates the mantra of the biotech bulls: Many of the 300 or so public U.S. biotechnology companies are getting better at what they are doing. And the

Food and Drug Administration

is approving more biotechnology industry-invented drugs than ever before, while big drug companies, which often finance the expensive and time-consuming drug-development process, need the products more than ever to bolster their giant and less productive research-and-development complexes.

Bourne, who holds U.K. stocks such as

Celltech

and

Cambridge Antibody Technology

and U.S. companies such as

Creative BioMolecules

(CBMI)

,

Genzyme

(GENZ)

and

Geltex

(GELX)

, says biotechnology investing is "never going to be a straight line to the moon."

Remember the Run-Up

Casual observers may be forgiven for believing some biotech companies recently had discovered the secret to eternal youth. Shares in Cambridge Antibody, for instance, traded near 1999 lows of 1.65 British pounds for much of last year. They suddenly climbed to a high of 52.50 pounds last month, with little news to back up the rise. The shares closed Monday at 38.50.

Steven Delco, biotechnology analyst with

Miller Tabak

, attributes Monday's declines to natural profit-taking following months of momentum investing that sent shares to all-time highs. For companies such as

Medarex

(MEDX)

, which fell 10 5/16, or 7.2%, to 132 11/16, "there's just a lot of profit-taking" to be done.

"Biotechnology has become a speculator sport in the last six months," Delco continues. "There's just a lot of indiscriminate investing and now there is indiscriminate selling."

Delco has a long-term buy rating on Medarex, which competes with

Abgenix

(ABGX)

, Cambridge Antibody, Germany's

MorphoSys

and others in making genetically engineered proteins that big drug companies use to make new drugs. Shares in all four companies have surged in recent months.

Feed Bag

The recent gains in biotechnology, which some investors attributed to a spillover of funds from technology investing, came after a long hiatus of sluggish demand for biotech stocks. The new sizzle brought dozens of companies to market to seek funds.

CV Therapeutics

(CVTX)

, a Palo Alto, Calif., developer of cardiovascular drugs, recently raised $175 million in a convertible bond issue to continue its research, eliminating its need to seek funds from big drug companies -- for now.

"If we hadn't

raised the money, I would be concerned," says Louis Laing, CV's chairman and chief executive, who said the company currently has about $250 million in cash on its books.

Laing said recent fundraisings have provided a welcome relief for many biotechnology companies, which previously might have been forced to turn over a larger percentage of profits to drug company partners in return for rights to promising drugs.

"Biotech companies don't need big pharma companies as much as they did a year ago," says Laing. "Pharma had driven some very one-sided deals. Now we see a rebalancing of that equation. Biotech coffers are much more full now."