Subject: Investors on Biotech Bandwagon May Be Headed for Rough Road 
Date: Published: 11/15/91 (131 lines)
Source:  Wall Street Journal.  Copyright Dow Jones & Co. Inc. 

    Investors on Biotech Bandwagon
    May Be Headed for Rough Road
    ----
    By Laurie P. Cohen and Anne Newman
    Staff Reporters of The Wall Street Journal

    NEW YORK -- Even the biggest fans of biotechnology stocks
 are starting to say that the group is due for a dose of
 reality and that investors in some of these sizzling stocks
 are likely to get burned.
    The market value of 45 large biotech stocks nearly doubled
 in the two months through October -- to $45 billion, says
 John Kaweske of Denver's Financial Funds.  Yet a recent
 downturn in the group accelerated yesterday, prompting
 widespread worries that others may soon fall out of bed.
    "You've seen a group that's had an incredible run, and
 it's naturally going to correct," says Michael Gordon,
 manager of the $1 billion Fidelity Select Biotechnology Fund.
    "There's been indiscriminate buying" and investors should
 be wary even though biotech stocks aren't bracing for a
 wholesale fall, says Anne K. Anderson, president of Atlantis
 Investment Co., a growth-stock research concern.
    No one is calling biotech a bad business.  The federal
 government estimates that sales of genetically engineered
 drugs will explode to $50 billion by the year 2000, from $2
 billion this year.  But many of this year's start-ups won't be
 around five years from now, market veterans say.  Meanwhile,
 the speculative fever has caught up nearly every company in
 the group.
    "You've got some really high speculative fever in the
 biotech sector," says Mark Simon, an analyst with San
 Francisco-based Robertson Stephens & Co.  "A lot of retail
 investors don't want to miss the train that's pulling out of
 the station."  A PaineWebber Inc. index of 103 biotech stocks
 soared 128% in the year's first 10 months.
    Rushing into the arms of eager investors this year have
 been 32 young biotechnology companies making initial public
 offerings -- more than the total for the prior three years.
 Including stock sales by already public companies, the
 biotech crowd has raised $2.3 billion -- nearly one-third of
 the $7.4 billion raised for the whole biotech industry since
 1980, according to IDD Information Services.  And the heat is
 still on:  Nearly two dozen more companies plan offerings
 before New Year's Day.
    But investors' ardor seems to be cooling for some of the
 companies.  Take Anergen, a company working on a treatment for
 multiple sclerosis and other diseases.  No sooner did the
 Redwood City, Calif., company go public last month at $8 a
 share than the stock nearly quadrupled, hitting $31.50 within
 two weeks.  Then investors began pondering the fact that
 Anergen isn't planning to apply to the Food and Drug
 Administration to begin clinical tests on a product before
 late next year.  Even if the application is approved and the
 tests succeed, Anergen is years away from selling a product.
 By yesterday, the shares had descended from the stratosphere
 to $16, down 75 cents, in late over-the-counter trading.
    Many times in the past, a blizzard of new offerings has
 been followed by a rainy season for stock prices.  A recent T. 
 Rowe Price Associates study showed that stock performance of
 biotech issues declined sharply in the second quarters of
 1983, 1986 and 1987, all times when public financings of
 biotech issues reached record levels.
    Investors who chase biotech today often pay steeply
 marked-up prices.  Immunex Corp. was quoted at $54.75, down
 $2, yesterday in late OTC trading, but up 36% from three
 weeks earlier.  The company hasn't announced any new products
 or made any major discoveries in that period.
    With this week's cooling of biotech stocks, professional
 investors say the great 1991 rally in biotech stocks appears
 finally to be losing steam.  "I think this is the end of the
 beginning -- we get to a rest for awhile," says Barbara
 Hoffman of Denver's Financial Funds.
    Some biotech stocks may still thrive.  Mr. Gordon says that
 even if the stocks as a group head lower, he still believes
 that the best biotech stocks will continue to outperform the
 market.
    Yet the biotech winners may get harder to find.  Because
 there are so many new biotech offerings, Wall Street analysts
 are unable to do research on most of them.  Oppenheimer & Co. 
 has just added a fourth stock analyst to its biotech research
 team, "and we still can't follow many of the new biotech
 issues," says Jeffrey Casdin, who heads Oppenheimer's team.
    "Wall Street research has ground to a halt," says Mr. 
 Simon at Robertson Stephens.  "If it's bad for us, think how
 bad it is for investors."  He adds:  "I'm getting calls from
 relatives {with maturing CDs} who would never even buy IBM
 because it's too risky.  With low money-market yields and with
 real-estate prospects hardly robust, they're willing to buy
 the riskiest stocks in the market.  It just blows my mind."
    Even savvy investors such as Fidelity's Mr. Gordon have
 been buffeted at times by biotech stocks.  His fund owns
 Immune Response, which has lost more than one third of its
 market value this week amid concern that federal regulators
 will require lengthy testing of its AIDS vaccine.  Mr. Gordon
 is believed to have sold off much of the fund's Immunex
 position three months ago, only to buy Immunex shares back
 later at a higher price.  Mr. Gordon says only that "we are
 very large shareholders of Immunex"; he allows that the
 fund's position is "higher now than it was two months ago."
    Traders say the group is even more volatile than usual.
 With some professional traders storming in to buy or sell for
 quick trading profits, "all these stocks are very fragile
 right now," says biotech stock trader Amy Foster of Kidder,
 Peabody & Co. 
    Yet biotech remains one of the few stock-market sectors
 where getting in on the ground floor can make an investor
 rich.  Hence, seasoned investors are scouring for
 opportunities, lured by the industry's potential to fight
 such elusive ailments as Alzheimer's, cancer and AIDS, and to
 find better ways to grow crops, control pests and clean up
 pollution.
    Ms. Hoffman, for example, has been watching Synergen as it
 tumbled 12% this week.  By 1995, she expects the company to
 have more than $500 million in annual sales of drugs to treat
 septic shock and other inflammatory diseases such as
 rheumatoid arthritis and asthma.  At yesterday's close of
 $57.25, Synergen is still a little pricey, she says, but at
 $45 a share, it would be attractive again.
    Mr. Casdin is more dour.  "If the market cracks, biotech
 will crack, too," he says.  But if an economic recovery sets
 in, and other sectors perform better, "a lot of the hot money
 will leave and crater biotech stocks.  Things don't look great
 either way."

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