Thursday September 6, 1:47 pm Eastern Time
Press Release
SOURCE: U.S. Bancorp Piper Jaffray
U.S. Bancorp Piper Jaffray Biotechnology Analyst
Sees Small- and Mid-Capitalization Stocks as the
Ticket for Investors in Second Half of 2001
NEW YORK, Sept. 6 /PRNewswire/ -- In his new in-depth industry report,
``Biotechnology Industry: 2001 Mid-Year Update,'' U.S. Bancorp Piper Jaffray Senior
Biopharmaceuticals Analyst Mark Augustine continues to see a more selective approach to
biotechnology investing -- one that is focused on small-capitalization, mid-capitalization and
earnings-per-share breakout stories -- as the most effective strategy for the second half of
2001. Augustine's top small- and mid-capitalization stock picks include Strong Buy-rated
Alteon Inc. (NYSE: ALT--$2.55, #@), Aviron (NASDAQ: AVIR--$25.61, #@) and
XOMA Ltd. (NASDAQ: XOMA--$12.73, #@). His top large-capitalization stock picks
include Strong Buy-rated MedImmune, Inc. (NASDAQ: MEDI--$41.59, #) and Buy-rated
Genzyme Corp (NASDAQ: GENZ--$55.64,#).
``Among our Biotech 100 stocks, those stocks we track with market caps below $1 billion
at the end of 2000 handily outperformed their large-capitalization brethren in the first half of
2001,'' said Augustine. ``For investors who looked to large-capitalization names to minimize
downside risk, we point out that four of the 26 largest (i.e., greater than $2 billion market
capitalization) biotech companies lost 50 percent or more of their value in first half of 2001.
In contrast, only five of the 74 companies we track with a market capitalization below $2
billion declined by 50 percent or more.''
In addition, Augustine points to three factors affecting the biotechnology market in 2001:
1) slowing biotechnology financings (initial public offerings (IPOs) and
stock offerings) in 2001;
2) overall economic outlook and Food and Drug Administration (FDA)
uncertainties;
3) convergence of large-capitalization biotech valuations;
``As the year began, we saw a number of product-specific and valuation issues that could
adversely affect performance of large-capitalization companies, such as Genentech, Inc.
(NYSE: DNA--$47.73, Neutral, #) and Immunex Corporation (NASDAQ:
IMNX--$17.54, Neutral, #). These issues came home to roost in first half of 2001. Genentech and Immunex were among the
worst performing biotechnology stocks that we track. We see prospects for late 2001 visibility on an economic recovery as a
mixed blessing for biotechnology stocks, while hoping that a near-term appointment of a new FDA commissioner can break the
product logjam at a demoralized agency.''
In the 116-page report Augustine states that the U.S. Federal Reserve has lowered a key short-term rate six times in 2001 in
an effort to stimulate an ailing economy. Lower rates typically benefit technology stocks over the ensuing 12 months, which
could help biotechnology issues. However, biotechnology stocks have posted strong gains since 1999, and depressed stock
prices in technology and other sectors of the economy could provide competition for investor funds when visibility on an
improved economy surfaces. Most economists and companies project an economic turnaround by year-end 2001 or the first
half of 2002. ``We believe this outlook supports our view that investors should maintain a selective approach to investing in
biotechnology stocks in the second half of 2001,'' said Augustine.
In addition, the United States FDA has been without a leader since Jane Henney resigned after the presidential election in
November 2000. With a short list of candidates in circulation, Augustine is optimistic that the near-term appointment of a new
FDA commissioner could improve FDA morale, expedite regulatory review times and lift the clouds hanging over
biotechnology and pharmaceutical potential product approvals in second half of 2001.
In his January 2001 report, ``Investing in Biotechnology in 2001,'' Augustine cautioned that some large-capitalization
biotechnology valuations (especially in companies with significant price/earnings growth (PEG) ratio premiums) did not allow
much margin for poor execution or clinical setbacks. At the time, shares of ten large-capitalization biotechnology companies
that Augustine tracks were trading between a high PEG ratio of 3.5 (Genentech) and a low ratio of 1.2 (MedImmune). During
the first half of 2001, the PEG spread of 2.3 was cut nearly in half, to 1.2.
``The upshot? Bargain hunters who simply invested in relatively 'undervalued' biotechnology stocks in the first half of the year
would have turned in an impressive first half of 2001 performance,'' said Augustine. ``The five most expensive biotechnology
stocks (based on PEG ratios) declined, on average, by 19 percent in first half of 2001, against a seven percent increase in the
five cheapest stocks. The top five biotechnology stocks (on a price/earnings multiple basis) from January posted a 22 percent
decline, compared to a 10 percent increase in the bottom five during the same timeframe.''
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