Biotech investors search for signs of a bull

Shares of Genentech Inc. fell nearly 4 percent after it reported weaker-than-expected sales of its cancer drug Avastin, but shares of Genzyme Corp. rose more than 8 percent after its second-quarter results topped expectations. The main biotechnology indexes were little changed as investors tread water ahead of results from other profitable biotechnology companies, particularly Amgen Inc. and Gilead Sciences Inc. . "The potential influence of this quarter's earnings on the group hangs a little in the balance," said Geoffrey Porges, an analyst at Sanford Bernstein. "If Amgen and Gilead beat estimates then I think the outlook for the sector will be strong." But even if earnings are strong, it will likely take more than solid earnings to sustain a rally longer term, said Fariba Ghodsian, who helps manage Dafna Capital Management's $200 million (109 million pounds) biotechnology fund. "I think we need more high profile drug approvals to really swing the tide," she said. "We're in a tough regulatory environment." The Nasdaq Biotechnology Index has fallen 17 percent since late February while the American Stock Exchange Biotechnology Index has fallen 14 percent, trailing most broader indexes. The profitable biotechnology companies are trading on average at about 26.5 times 2006 earnings, close to historical lows. Several drugs that investors had expected to be approved recently failed to pass muster with the U.S. Food and Drug Administration, including Cephalon Inc.'s drug Sparlon for attention deficit hyperactivity disorder and the all-important dose of Neurocrine Biosciences Inc. and Pfizer Inc.'s insomnia drug indiplon. Moreover, this year's annual meeting of the American Society of Clinical Oncology, which took place in June, did little to fire up the sector. On the contrary, centre stage at a conference often dominated by biotechnology companies was held by big pharmaceutical companies. But even though Genzyme and Genentech's second-quarter earnings both beat expectations, investors hit Genentech and boosted Genzyme. "This is a tale of two worlds," said Tim Biggam, options strategist at Man Securities. "It confirms that biotech as a sector may be choppy over the foreseeable future and more of a stock pickers' market." According to Cowen & Co. research, biotechnology stocks have had eight bear markets over the past 10 years, lasting 19 weeks each on average. The longest bear market lasted from October 14, 1997 through August 31, 1998, a period during which the Nasdaq biotech index lost 28 percent of its value. The worst sell-off, according to Phil Nadeau, a Cowen analyst, was during the 31 weeks from December 6, 2001 through July 10, 2002 when the Nasdaq biotech index lost 58 percent of its value. While it may be tempting to look backward for a trigger, he said, it may not always be productive. "When it comes to the beginning and end of biotech sell-offs, it would seem that the moves of the broader market, and hence sentiment of the general investment community, is perhaps more important than any developments specific to the biotech sector." "Source":[ http://business.scotsman.com/latest.cfm?id=1019042006]

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