Stumbled on this article.
ViroLogic Snub Underscores Biotech's Investing Malaise
By Dane Hamilton
Staff Reporter
5/11/00 7:13 PM ET
ViroLogic (VLGC:Nasdaq - news - boards) and Visible Genetics (VGIN:Nasdaq - news - boards) won a big endorsement Wednesday from a prominent medical journal. But judging by their share prices, no one noticed.
The episode suggests that investors' disdain for biotech stocks has become as pervasive in the last two months as the momentum-driven buying frenzy that preceded it. That means that in their quest to avoid risky tech and biotech names, investors may be passing up opportunities to buy into legitimate growth stories, such as those of ViroLogic and Visible Genetics, say analysts and investors.
Cocktail
ViroLogic and Visible are both developing test kits, called assays, to help doctors better determine which drugs AIDS patients should take and when. With well over a dozen choices of drugs usually taken in combination drug "cocktails," clinicians need all the help they can get in determining drug choices. Just keeping ahead of the mutating virus is a major challenge, often requiring rejiggered combinations to slow the buildup of drug resistance -- an inevitable byproduct of AIDS drug therapy.
Wednesday, the Journal of the American Medical Association, arguably the nation's top medical journal, published the results of a study that endorsed the use of so-called resistance testing assays developed by ViroLogic and Virco, a private Belgian company. The study, by an international panel of AIDS treatment experts, said resistance testing could "enhance" AIDS treatment, saving lives and reducing costs. Visible Genetics is developing a similar test, called Trugene HIV-1. "The science looks terrific and there's a lot of potential there," AmeriCal analyst Leonard Cohen says of ViroLogic. AmeriCal didn't underwrite the company's recent IPO, has no formal rating on the stock and doesn't hold it.
The Color of Money
Studies in JAMA and other major medical publications often cause shares in small drug and biotech firms to soar or crash, depending on the news. After this news hit the market, however, ViroLogic shares closed unchanged Wednesday at 7 1/16, while Visible Genetics slipped 13%, to 28 13/16, amid a widespread tech selloff. Thursday, in a more sanguine market, ViroLogic shares slid 7/16, or 6.2%, to close at 6 5/8, and Visible Genetics shares dropped 7/16, or 1.5%, to 28 3/8. What gives?
"It's a viable story, but in the general market malaise no one is getting very excited about it," says Tim Bepler, fund manager with Orbitex Health & Bioscience Fund, which holds Visible Genetics shares.
That malaise has been evident beyond the nonreaction to the AIDS drug news. The IPO market, which through March was chock-full of biotech deals as cash-hungry companies rushed to market to cash in on a once-in-a-lifetime funding opportunity, began to cool soon after the market reached its March 10 peak.
ViroLogic in particular has been the victim of investors' sudden distaste for biotech stocks. Its IPO this month raised $35 million, down from the planned $75 million, and failed to appreciate in its first day of trading, making it a mere shadow of the stellar offerings of prior months. Shares in Sequenom (SQNM:Nasdaq - news - boards), for instance, surged to 191 following a Feb. 1 IPO at 26, while OraPharma (OPHM:Nasdaq - news - boards) shot to 30 from its offering price of 18 on March 9.
Risky Business?
Of course, biotech investors have been burned before, and they could be forgiven for pointing out that this story still bears its caveats. One is that tests haven't gained wide acceptance and can cost anywhere from $250 to $1,100 a shot, which could be a key stumbling block to market expansion. ViroLogic's test has been on the market only since November and Visible Genetic's HIV test isn't yet approved in the U.S.
"The business model isn't quite proven yet and the market is yet to be created," adds Bepler.
Still, every investment has its drawbacks, and that didn't keep investors away from risky biotech plays between August and March, when the sector's leading indices more than doubled amid an unprecedented tech-buying frenzy. Since then, though, these shares have seen a massive retreat, regardless of developments at the companies: Visible Genetics -- which hit a high of 119 in March -- are now more than 75% off their high despite the fact that the company has no disclosed setbacks since then.
So biotech is left for now with a few steadfast supporters. "There's a real business opportunity there, which could result in patients getting better care," says Michael King, analyst with Robertson Stephens, which underwrote a recent offering by Visible Genetics and rates the stock a buy.
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Good article flat price. Might be one to tuck away. Will have to do more DD.
Jack |
