QLT included in a Biotech Unit Investment Trust to trade on the AMEX under the symbol BBH. May add to the demand for QLT shares...
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November 23, 1999
DJ Biotech Investors Have New Vehicle To Play Broad Market
By Melanie Trottman
NEW YORK (Dow Jones)--Biotechnology shareholders who want to cast a broad net with a single investment have a new option.
The American Stock Exchange Tuesday began trading Biotech HOLDRs, a new security launched by Merrill Lynch & Co. (MER) that represents 20 companies in the sector.
Measured by market capitalization and trading volume, the names in the group are among the largest and most liquid biotech stocks, including Amgen Inc. (AMGN), Genentech Inc. (DNA), Biogen Inc. (BGEN) and Immunex Corp. (IMNX).
Merrill Lynch is touting the security as a flexible, cost-effective way for market players to diversify their biotech investment at potentially lower costs than other vehicles, like mutual funds.
The security is being targeted to two classes of investors - retail and institutional. It is expected to appeal to retail investors who have an interest in biotech but would normally invest through individual stocks or a mutual fund.
Institutional investors are expected to invest in the security as a tactical way to move in and out of a sector.
According to Merrill's prospectus, the initial price of the Biotech HOLDRs was $109.18 each, including the underwriting fee. The company Monday priced 4.5 million HOLDRs, which trade under the symbol BBH, for a total offering price of more than $490 million. The newly issued HOLDRs, which represent undivided beneficial ownership interest in the common stock of the 20 companies, will be available on a continuous basis.
In addition to Amgen, Genentech, Biogen and Immunex, the Biotech HOLDRs include PE Corp.-PE Biosystems Group (PEB), MedImmune Inc. (MEDI), Chiron Corp. (CHIR), Genzyme General (GENZ), Gilead Sciences Inc. (GILD), Sepracor Inc. (SEPR), Idec Pharmaceuticals Corp. (IDPH), QLT PhotoTherapeutics Inc. (QLTI), Millennium Pharmaceuticals Inc. (MLNM), BioChem Pharma Inc. (BCHE), Affymetrix Inc. (AFFX), Human Genome Sciences Inc. (HGSI), Icos Corp. (ICOS), Enzon Inc. (ENZN), Celera Genomics (CRA) and Alkermes Inc. (ALKS).
Purchasing Biotech HOLDRs will likely require a minimum investment of about $10,000; the securities can only be traded, issued and canceled in round lots of 100 shares. They opened Tuesday at about 107 1/8 and were recently trading at around 104 11/16.
Merrill's new investment vehicle comes in a year when biotech stocks have rallied as select companies in the largely unprofitable sector have matured, and launched or expanded product offerings.
According to Merrill's prospectus, the Biotech HOLDRs Trust will issue the depositary receipts, called Biotech HOLDRs, with the Bank of New York listed as trustee. The Biotech HOLDRs are separate from the underlying deposited common stocks that are represented by the Biotech HOLDRs.
Among the risk factors listed in the prospectus is that Biotech HOLDRs may trade at a discount to the aggregate value of the underlying securities. Also, after the initial deposit, one or more of the issuers of the underlying securities may no longer be involved in the biotech industry. In this case, the Biotech HOLDRs may no longer consist of securities issued only by companies involved in the biotech industry, Merrill warned.
Merrill also noted that it selected the underlying securities in the Biotech HOLDRs based on the market capitalization of issuers and the market liquidity of common stocks in the biotech industry, without regard for the value, price performance, volatility or investment merit of the underlying securities.
"The Biotech HOLDRs trust, the trustee, Merrill Lynch, Pierce Fenner & Smith Inc., and their affiliates, have not performed any investigation or review of the selected companies, including the public filings by the companies," Merrill said.
Merrill further cautioned that investors shouldn't conclude that the inclusion of a company is any form of investment recommendation.
The expenses associated with trading Biotech HOLDRs are expected to be less than trading each of the underlying securities separately, Merrill said.
After the initial offer, Biotech HOLDRs may be acquired in two ways: through an in-kind deposit of the required number of common shares of the underlying issuers with the trustee, or through a cash purchase in the secondary trading market.
Biotech HOLDRs are the second offering from Merrill's new HOLDRs investment platform. In September, Merrill introduced Internet HOLDRs, which trade under the symbol HHH on Amex.
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