Biotech stocks have nowhere to go but up

Street Smarts. By Scott Gottlieb, MD, AMNews contributor. Dec. 24/31, 2001.

STREET SMARTS

A column looking at the corporate side of health care

SEE ARCHIVES

Three hundred biotech executives and financiers gathered in San Francisco recently to mull over the industry's economics and, in particular, the difficulty of floating initial public offerings. Coming off one of the sector's worst meltdowns, with many high-flying biotechnology companies losing more than half their market values, the mood should have been somber.

But most investors were surprisingly upbeat. They were convinced that it is time to go hunting in the biotech bargain bin. A sector recovery is at hand, and many predict a biotechnology boom lay just ahead.

Wishful thinking? Last year's IPO performance spoiled the industry and broke all previous records, as 66 biotech firms went public. This year we'll be lucky to get 10 or 12.

But despite the yearlong biotech bear market, the industry has actually experienced its second-best fund-raising year ever. During the first three quarters of 2001, biotech firms raised $10.2 billion from investors, handily beating the $7.8 billion raised in all of 1999. Of course, this year's number seems like a letdown, what with the industry having raised a record $37.1 billion last year. But there isn't a letdown.

Biotechnology is gaining momentum, as investors hunt for stocks that have the potential for high growth. Many of these aggressive investors find the biotech companies more palatable than traditional technology plays in telecommunications or wireless communications. (The Internet, once the hot play, doesn't even enter the picture.)

With biotechnology firms maturing and many pipelines brimming with drugs in advanced clinical trials, the industry seems poised to pick up. [...]