NYT article about current trends of investing in biotech stocks.
October 29, 2000
INVESTING
A Hunt for the Gems in Genomics
By SANA SIWOLOP
CAMILO MARTINEZ
remembers the joke
circulating around Wall Street
not that long ago: If you want to
cause a buying stampede among
investors, just insert the prefix "gen"
into a company's name.
Dr. Martinez, an internist who is a
co- manager of the Dresdner RCM
Biotechnology fund, witnessed the
market frenzy that began in the fall
of 1999, as some genomics stocks
started to more than quadruple in
value. Investors saw a bright future
in genomics, believing that the
science, which identifies the genetic
roots of illnesses, would lead to the
development of lucrative
life-prolonging drugs.
Analysts, though, had warned that
the industry was still in its infancy
and that most genomics companies
could expect to see losses for the
next three to five years. By last
spring, as the overall market began
to tumble, investors began pulling
out of many genomics stocks almost
as quickly as they had plunged in.
The sector generally remains
depressed these days, even though
researchers announced in June that
they had decoded the human genome — a landmark scientific discovery.
(Celera Genomics, a unit of the PE Corporation, and the publicly financed
Human Genome Project said they had produced a rough draft of the body's
estimated 100,000 genes.)
Many genomics stocks are still off considerably from their 52-week highs.
Celera, for example, hit $276 a share last March, but now trades at $67.25.
Still, several genomics companies are busy going public, with roughly a
half-dozen more initial public offerings expected through this fall. Charles C.
Duncan, a biotechnology analyst at Prudential Securities, said that about three
dozen genomics companies had already gone public this year, a rate he called
"amazing."
But for investors, picking apart the genomics industry can seem as
complicated as picking apart the genes themselves.
"A fundamental problem is that people do not understand exactly what these
companies do, or what their business models are for the long term," Dr.
Martinez said.
Meirav Chovav, an analyst at Salomon Smith Barney, agreed: "What we're
hearing from both institutional and individual investors is that everything is
confusing in terms of what fits in where."
Mr. Duncan said the genomics industry was starting to sort itself into four
broad camps.
The first group is the technology providers that supply tools like the so-called
gene chips used in analyzing genomics data, along with DNA sequencers and
bioinformatics software. It includes companies like Affymetrix, LION
Bioscience, Gene Logic and Applied Biosystems, Celera's sister company,
which was formerly known as PE Biosystems.
The second is information providers, like Celera and Incyte Genomics, that
compile genetic information into databases and then sell subscription rights to
drug companies.
In the third group are the research companies like Sangamo Biosciences,
Lexicon and Genome Therapeutics; they generally operate under research
agreements to provide some sort of valuable technology to biotechnology or
pharmaceutical companies. The fourth set uses genomics to develop better
diagnostics and pharmaceutical products. It includes companies like Myriad
Genetics, Human Genome Sciences and Millennium Pharmaceuticals.
SOME money managers say genomics investors have been cherry-picking
throughout the sector lately.
Steven Newby, portfolio manager for GenomicsFund.com, a mutual fund
that started in March, said he thought that investors had lost their earlier zeal
for companies that sell products like gene chips, bioinformatics software and
genomic databases and are moving instead to those that are actually
developing drugs. He pointed out that Affymetrix, Celera and Gene Logic
were off between 65 and 70 percent from their 52-week highs, while the
stock of Millennium recently reached a new high, and Human Genome
Sciences was not too far from the high it set last spring.
"There's been quite a restructuring of investor interest from the spring, when
investors simply bought genomics stocks lock, stock and barrel," Mr. Newby
said.
Because genomics stocks have proved so volatile, he recommended that
investors invest in a variety of companies across the entire sector. The
largest genomics holdings in his fund are Millennium Pharmaceuticals,
Human Genome Sciences and Medarex, a drug developer.
Dr. Martinez's fund also invests in Millennium Pharmaceuticals and Human
Genome Sciences, though he also has positions in eight companies that are
mostly suppliers to the genomics industry, like Charles River Laboratories, a
large provider of laboratory animals used in research.
"Not only do we think that big suppliers are a relatively low risk to play the
genomics industry, but many of these companies have been profitable for
many years and have lots of cash on hand," Dr. Martinez said.
Mr. Duncan said he liked a diverse group of genomics companies, although
he is more focused on those that are aimed at drug development. Among his
favorites are Celera, Genome Therapeutics, Sangamo Biosciences and Human
Genome Sciences. He also likes Curagen and Tularik, which are involved
mainly in drug discovery and development, and Genomica, which provides
bioinformatics software.
WHILE some analysts say the stock of Human Genome Sciences is
overvalued — they are generally cautious about the clinical benefits of the
drugs that the company currently has in testing — Mr. Duncan has a
12-month target of $125 on the stock, which closed on Friday at $88.13.
The company had a two-for-one stock split on Oct. 5.
Mr. Duncan's top pick is Myriad Genetics. He sees it as unusually prolific in
discovering disease-related genes but also as an early leader in the field of
proteomics, which many scientists generally regard as the next step after
genomics research. Proteomics involves the large-scale study of the proteins
that are made by genes.
Proteomics companies have not eluded the radar screens of investors lately.
When Ciphergen Biosystems and Genomica each went public on Sept. 29,
the stock of Ciphergen, a proteomics company that had just $5 million in
revenue in 1999, doubled from $16 to $32, while Genomica, the
bioinformatics company, rose just 44 cents. Ciphergen Biosystems now
trades at $29.75, while Genomica is at $13.
Mr. Newby said he thought that investors were latching onto proteomics as
the latest buzzword in the genomics industry.
"I first noticed the interest in the spring, when genomics stocks were down,
and investors were looking for something new," he said.
Buzzwords worry Dr. Martinez, who said genomics investors have already
spent the last year jumping from one trend to another. Rather than focusing
on trends, he said, investors should remember that the relationship between
genes and diseases is so complex that the efforts to date have simply been "a
race to the starting line."
Mr. Newby agreed — and recommended some caution.
"This is an industry with open-ended potential over the next 20 to 50 years,"
he said. "There's no reason why you have to be right there right now with all
your money."
Copyright 2000 The New York Times Company |
