For the biotech sector, it feels like late September.

Battered biotech stocks are revisiting the lows last seen in the weeksafter the terrorist attacks in New York and Washington, D.C. And like thosepessimistic times, there are few biotech traders on Wall Street willing tostep up and buy.

But on a brighter note, there were good signals Friday that the sectormight be hitting a bottom, observers say. So when do biotech stocks startrising in a significant way? Unfortunately, that's a question few arebrave enough to answer.

"When it's raining outside for as long as it has, it's hard to thinkabout seeing the sun tomorrow," says Jon Alsenas, fund manager at INGFurman Selz Asset Management, summing up the doldrums gripping normallybuoyant biotech investors these days.

Real numbers bear witness to the troubles. The bellwether AmexBiotechnology Index slumped Friday to an intraday low of 423.44, alevel not seen since the opening of trading post-Sept. 11. A small recoverywas staged at midday, but it petered out at the end of the day. The index closedFriday at 428.94, which dropped it 11% for the week and 25% for the year.

Friday is certainly a day diehard biotech investors want to forget,but a recap of the carnage is instructive to understand what might lieahead. The day actually opened with some optimism because Amgen ( AMGN), on Thursday night, capped off what was a mediocre biotechearnings season with a relatively strong report, including a bullish boostin guidance for sales growth.

But whatever good mojo the No. 1 biotech firm sprinkled on the sectorearly vanished fast as rumors spread that one or more big biotech fundswere being hit with redemptions, forcing the funds to liquidate largepositions. No one seemed able to pinpoint exactly who was in trouble,but it didn't really matter, as fund managers all over Wall Street beganselling.

One Thing Leads to Another

That led to across-the-board losses Friday: Amgen, despite good news,fell 2.5%; Genentech ( DNA) fell 4%; Cephalon ( CEPH) dropped 5%; GileadSciences ( GILD) lost 9%; Idec Pharmaceuticals ( IDPH) was off 4%; and Genta ( GNTA) dropped 9%.

But the selloff may have also signaled capitulation.

"When you start hearing rumors about this fund or that fund going outof business, it usually signals that we're at a bottom," says RobertsonStephens senior biotech analyst Mike King. "I think we test the 400 levels of the Amex Biotech Index, but we should hold."

Stabilizing the sector is one thing, but getting it to move up in ameaningful way still requires courage not in abundance these days.

Biotech Hits the Floor
A test of post-Sept. 11 lows is in the offing
Source: Yahoo! Finance

"There is just no conviction in the market right now," says one biotechhedge fund manager. "I certainly don't want to be the first one in so I canget run over."

Another fund manager, exasperated by indiscriminate selling, even pinesfor the good old days when sell-side analysts led cheers for stocks -- andinvestors listened.

"Some of the selling Friday morning was crazy, but as we reached Sept. 11 lows, I didn't get one phone call, or one email, from anyanalysts supporting the sector," he says. "Analysts are so skittish thesedays that they're scared to say anything. The machine is broken."

The problem, of course, is that many of the marquee biotech stocksstill aren't cheap. Genentech stock has fallen about 20% this year, butthe company still trades at 40 times 2002 earnings. Idec Pharmaceuticals isone of the fastest-growing companies in the sector, but how excited caninvestors get when the stock -- down 17% for the year -- trades at 61 times2002 earnings or 45 times 2003 earnings?

In fact, the only profitable biotech company that looks somewhatattractive these days is Biogen ( BGEN), which trades at a relatively cheap 20times 2003 earnings. But Biogen is loaded with risks. The bull story getsreally ugly if its psoriasis drug, Amevive, doesn't get approved later thisyear.

But this negativity won't last forever. Fund manager Alsenas saysinvestors have to pick themselves up off the floor and get back in the game like they did post Sept. 11. That means looking for stocks with goodgrowth stories that have been trampled, unfairly in today's bear market.

"Six months from now, I don't want to be kicking myself for not owningthese stocks," he says.

Alsenas says he's buying CV Therapeutics ( CVTX) because its heart drug,Ranolazine, will be a winner, despite a lot of naysayers who believeotherwise. He also likes Scios ( SCIO) -- yes, it has a lofty valuation -- butits heart drug, Natrecor, should continue to surprise Wall Street withbetter-than-expected growth.

This is a start, but the biotech sector needs more good news, andmore buyers, before it gets its shine back.