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Biotech / Medical : AFFYMETRIX (AFFX) -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (1430)	11/15/2000 10:21:42 AM
From: Jon Koplik	Read Replies (1) \| Respond to of 1728

Looks like Barrons' attempt to crush the biotech stocks was only good for a day or two (I guess that was still sufficient time for friends of Barrons to "load up") (just kidding) (since I am married to a lawyer). Jon. ******************* NOVEMBER 13, 2000 Familiar Formula Could the biotechs become the market's next dot.coms? By Michael Shaoul Several times in recent weeks, biotechnology shares have remained strong despite sustained selling throughout the rest of the tech sector. In fact, biotech apparently is being viewed as a haven by some investors seeking holdings capable of delivering high returns without excessive risk. The situation is intriguing ... and worrisome. Certainly, significant strides have been made in recent months in drug discovery, bio-informatics and genomics. But while this sector has unique qualities that may enable it to diverge from the rest of the market in the short run, it doesn't operate in total isolation over the longer term. Since mid-1999, the biotechs have generated impressive gains and, even in the face of the market's recent volatility, a number of them remain at or near all-time highs, while many of their brethren in other areas of the tech universe have been battered. Behind this might be a broader phenomenon: investors' inability to place concrete value on the future returns of new and little-understood technologies. This isn't confined to biotechnology. Indeed, to a great extent, the most recent stage of the bull market grew out of the investing public's failure to grasp immediately the huge potential value of many technologies. This produced opportunities for those brave or wise enough to buy tech stocks cheaply; they later enjoyed the eye-popping returns that made the rest of us envious and eager to join in the fun. Soon, the technologies themselves (the Internet, broadband, telecommunication equipment and so on) became much better appreciated. Indeed, investors' indifference was replaced by wild optimism, pushing up prices to surprising heights. Arguably, however, even as they plunged into the stocks, investors became no better at understanding the value of these technologies. Accordingly the valuations accorded to many dot.coms, telecoms and other tech issues exploded to levels that in retrospect seem unrealistic and that have now unraveled. Similarly, because biotechnology is especially complex, most investors long ignored it. But once they turned their attention to this group, it took off rapidly, fueled by biotech's inherent and invaluable promises, such as producing a cure for cancer and mapping the code of life. Undeniably, there have been remarkable discoveries in recent months. Nevertheless, the economic value being placed on the companies at the center of these achievements isn't founded in reality. Worse yet, the group is being overvalued on a fundamental basis at a time when its prospects, as viewed through the lens of technical analysis, is weakening. The Amex Biotechnology Index recently broke through but failed to hold above the high it reached last March. Its recent price of 722 is almost twice the low of 379 made last April. Although the index may seem robust, it's suffered a troubling reduction in breadth: Over the past three months, 10 of the BTK's 17 components either were up by only a negligible amount or fell, while its three highflyers -- Protein Design Labs, Vertex Pharmaceuticals and IDEC Pharmaceuticals -- all jumped by over 50%. Furthermore, two of the group's stalwarts -- Biogen and Immunex -- are giving off alarming technical signals. Biogen is more than 50% below its high and recently hit a year-to-date low, breaking through a support level. Immunex is also down significantly from its high above 83 and looks likely to test its trend support in the mid-30s. Both companies have established products. But their stocks have been hurt as biotech investors shift out of older names and into new ones with either non-existent or negligible earnings, but with promise perceived as enormous by the public. Sound familiar? It's precisely such circumstances that signaled the Internet mania and the subsequent downturn in the broad tech-stock sector. In sum, the biotech highflyers are dangerously exposed in a market that has seen significant selloffs in sector after sector. For this reason, our firm recently has reversed its previously bullish advice to clients that invest in this sector. Smart investment is always a matter of matching risks to potential rewards. So, riding the biotech darlings further could be dangerous. Sometimes, it's necessary to leave money on the table in order to keep some in your pocket. MICHAEL SHAOUL is executive vice president of Oscar Gruss & Son, a New York based broker-dealer.