The foundation of the recent biotech recovery was laid last September, when President Bush picked adviser Mark McClellan to lead the rudderless Food and Drug Administration. From the moment of his appointment, McClellan, a doctor and noted health care economist, made it clear that one of his top priorities would be to reinvigorate the regulatory agency and speed up the approval of new drugs. At the time, few, if anyone, could've predicted just what an impact McClellan's words would have on the biotech sector today, which is the midst of a heart-stopping rally. The Amex Biotech Index ( BTK) is now up about 38% for the year. (It was up more than 50% recently.) The broader market has also rallied, of course, but the biotech sector has been leading the way.
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The Amex Biotech Index surges ahead in 2003
Talk about a turnaround. The Amex Biotech Index fell 39% in 2002 -- its second consecutive year of losses -- so when the bell rang to begin trading in 2003, few investors were in the mood to predict good times ahead. It would be foolish to ascribe 100% of the biotech recovery to McClellan's leadership at the FDA; after all, there's just so much one guy can do. But a spate of drug approvals quickly left Wall Street with the impression that the regulatory agency -- once seen as a hindrance -- was now ready to help. AGN) to treat chronic dry eye disease, but the data supporting the company's filing were not entirely conclusive, Chan says, and that could've tripped it up at the FDA. It didn't. After that, the FDA approved drugs from Genzyme General ( GENZ), AstraZeneca ( AZN) and Millennium Pharmaceuticals ( MLNM), and it did so with alacrity. Investors, of course, jumped all over this news, concluding that the FDA would approve just about anything. Naturally, shares in biotech firms with drugs in front of the FDA have taken off. For example, take a gander at the chart for CV Therapeutics ( CVTX). Six months ago, this was a radioactive stock, because everyone was sure the FDA would reject its angina drug, Ranolazine. Today's conventional wisdom goes more like this: Puh-leeze, the FDA is a bunch of pushovers, right?