February 20, 2000
Personal Business
Gene Therapy, Disease Research
Make Biotech Shares Hot Again
By STEVEN SWARTZ
What a difference a few months make. Just last summer, we wrote about how the biotechnology industry was off more than 30% from its highs. Then biotech shares shot up roughly 30% in December alone, and they haven't looked back since.
The top-performing biotech fund, Dresdner RCM Technology, is up 88% since the first of the year. Such individual stocks as Inhale Therapeutic Systems and Vertex Pharmaceuticals are up 144% and 89%, respectively.
So, is it time to jump into biotech?
Behind the Rise
The answer is yes -- with some caveats. And if technology stocks can be puzzling because it's hard to figure out what the companies actually do, biotech can be even more baffling.
Fueling this latest rise: improved profits at some established players and the belief on Wall Street that progress is being made in the attempt to understand genetic code and produce breakthrough treatments for ailments such as cancer, heart disease and AIDS.
But for investors, the field can be murky at times. Biotech first surfaced as a hot sector in the late '80s and early '90s, only to plummet when profits failed to materialize. Even now, as top analyst Meirav Chovav told SmartMoney magazine, revenue projections from biotech firms can be little more than wild guesses. Mr. Chovav is currently a big fan of industry stalwarts Amgen and Genentech, but has also turned against two other major players, Biogen and Genzyme General.
Assessing the Field
When you couple this confusion with Wall Street's growing passion for the sector, you've got an excellent case for a sector fund.
There aren't many biotech funds out there right now, but here's how SmartMoney.com's Lewis Braham sizes up the field:
Fidelity Select Biotechnology (www.fidelity.com1) is the oldest and, we'd argue, the best. Recently departed fund manager Rajiv Kaul has a simple explanation for the sector's popularity: "New drugs, bigger drugs, better drugs." He was replaced Feb. 1 by Yolanda McGettigan, the former manager of Fidelity Select Banking.
Faraz Naqvi, a physician, is the lead manager of Dresdner RCM Biotechnology (www.drcmfunds.com2), which scored last year's biggest gains -- 111%. It's also the only no-load fund among our top three.
Our third pick is Franklin Biotechnology Discovery (www.franklintempleton.com3). Manager Kurt Von Emster has generally favored smaller-capitalization companies, as opposed to the larger-cap focus of Fidelity, and recently, the market has liked small-cap after years of inattention. Mr. Von Emster is bullish about the year ahead, saying that while about 14 biotech companies turned a profit in 1999, that number should triple to about 40 this year.
-- Steven Swartz is editor-in-chief of SmartMoney magazine. Contact him at: The Wall Street Journal Sunday, 200 Liberty St., New York, NY 10281. Email: personal.business@wsj.com4
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