It wasn't always pretty, but the biotechnology sector closed out 2004 on a positive note, with some good momentum running into 2005.

The Amex Biotechnology Index closed at 549.69 Tuesday, up more than 11% for the year, besting returns of the three major market indices. The Nasdaq Biotechnology Index, a broader measure of biotech sector returns because it includes more small- and mid-cap stocks, finished at 774, up a less robust 5.8%.

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Big-cap biotech stocks, by and large, were stronger performers than their small-cap brethren this year, which partly explains the divergent performances of the sector's two major indices. Biotech stocks with market caps in excess of $1 billion turned in positive returns this year, while biotechs with sub-$500 million market valuations posted negative returns, according to Banc of America Securities.

Handle With Care

Biotech is a volatile business and 2004 was no exception. The list of blowups this year is topped by


( GNTA), which saw its controversial cancer drug Genasense rejected by an FDA advisory panel in May. Other losers in the stock-return category this year, for various reasons, included

Maxim Pharmaceuticals

( MAXM),




Millennium Pharmaceuticals

( MLNM).

A biotech IPO window that first creaked open in late 2003 hit its stride in 2004, with 30 new issues raising approximately $1.8 billion -- the most since the biotech bubble year of 2000. But while a lot of money was raised by fledgling companies in the sector, the aftermarket performance was not something to trumpet.


Eyetech Pharmaceuticals

( EYET), which went public at $21 in January and is now up 113% for the year, is listed among the best-performing IPOs of the year. Meanwhile, the biotech sector can count three companies --


( CGTK),

Corcept Therapeutics

(CORT) - Get Report



(CYTK) - Get Report

-- on the worst-performers list.

Looking ahead to 2005, the U.S. government will (for the most part) lower reimbursement rates to doctors for drugs administered to Medicare patients in their offices. While there already has been much discussion and investor reaction to the new Medicare reimbursement plan in stocks like


(AMGN) - Get Report



( DNA) and

Biogen Idec

(BIIB) - Get Report

-- to name a few -- the market will finally get to see if it changes drug usage trends in any meaningful way.

The continued successful development and approval of new targeted biotech drugs for life-threatening diseases like cancer has been a real boon for patients. But these medical advances often work for only a small subset of patients, and they don't come cheap. Yet prices for these new targeted therapies are sky-high with no letup in sight, which begs the question: Who pays and for how long?

In December, President Bush moved Michael Leavitt, his Environmental Protection Agency chief, over to run the U.S. Department of Health and Human Services. Presumably, one of Leavitt's first jobs will be to help Bush pick a new commissioner of the Food and Drug Administration. With the FDA under the gun recently for its role in monitoring drug safety in the wake of the Vioxx withdrawal, Bush's choice for a new FDA chief will draw close scrutiny.

The success or failure of new drug launches will be an early 2005 focus for investors. Two big drugs to watch here include Tysabri, the new multiple sclerosis drug from Biogen Idec and

Elan Pharmaceuticals


, and Tarceva, the non-small-cell lung cancer drug marketed by

OSI Pharmaceuticals

( OSIP) and Genentech.

We'll get a fair share of important and market-moving clinical data in 2005. Among the stocks (and drugs) to watch: Genentech and Avastin data in non-small-cell lung cancer;

Cell Therapeutics'

(CTIC) - Get Report

Xyotax in non-small-cell lung cancer;


( AXYX) and Phenserine in Alzheimer's;


(CELG) - Get Report

Revlimid in MDS and multiple myeloma;

Onyx Pharmaceutical's


BAY 43-9006 in renal cell cancer;



Telcyta in ovarian and lung cancer;

CV Therapeutics'

( CVTX) Ranexa in angina; and possibly

Northfield Laboratories'

( NFLD) blood substitute Polyheme.

The following companies are among those with important FDA approval decisions on the docket for 2005:

American Pharmaceutical Partners

( APPX),

Amylin Pharmaceuticals

( AMLN),


( NTMD),

Neurocrine BioSciences

(NBIX) - Get Report



( ADLR) and


( SUPG).

2004's Biotech Movers

Returning to the theme of winners and losers in 2004, these companies stood out for their performance, both positive and negative.

Biogen Idec, at Tuesday's close of $67.86, was up almost 84% in 2004, largely on the back of its recently approved multiple sclerosis drug Tysabri. Shares of Biogen Idec first soared in February when the company surprised almost everyone by announcing that it would seek earlier-than-expected FDA approval for Tysabri. The drug, a blockbuster in the making with potential sales well in excess of $1 billion, was approved in late November.

Amgen, the biotech sector's largest company, was a laggard for most of the year, stung by investor concerns over changes to Medicare drug reimbursement rules and slowing sales growth. But negative returns in 2004 were erased by a late fall rally. At Tuesday's close of $64.60, the stock is up 3.6% for the year.

Gilead Sciences

(GILD) - Get Report

, buoyed by strong sales growth in its core AIDS/HIV drug franchise and the approval of a new combination HIV medicine Truvada, is up 21% for the year.

ImClone Systems


started the year strong with the approval of its colon cancer drug Erbitux, but the stock swooned midyear and is now up just 14.5%.

OSI Pharmaceuticals had a seesaw year, with shares shooting up, down and then up again on the prospects for its lung cancer drug Tarceva.