THE STOCK MARKET STUMBLES : Among the Losers, Biotechnology Shares Set the Pace in Selling Panic : * Trading: Many investors pulled out en masse. But analysts remained upbeat about the health of the industry.
Biotechnology stocks plunged sharply across the board Friday, leading a wave of market selling that caused the Dow Jones industrial average to suffer its sharpest drop in points in two years.
But analysts remained upbeat about the fundamental health of the industry, predicting continued growth for Southern California’s burgeoning biotech businesses.
Analysts said this latest correction demonstrates once again the volatile hopes and fears pinned on one of America’s fastest-growing industries, one expected to save thousands of lives and create more than 400,000 jobs by the end of the decade--but that is still operating, as a whole, in the red.
Biotechnology stocks dropped 10% to 20%, helping push the gloomy market down about 4% to 2,943.20, off 120.31 points. The drop only added to the recent flurry of bad news Southern California biotech companies have seen, demonstrating that the imagined potential of firms such as Immune Response and Xytronyx Inc., both based in San Diego, does not always pan out in products as soon as hoped.
But while many analysts expected the pumped-up sector was due for a fall, they were near-unanimous in their basic optimism about the industry.
Their faith echoes that of investors, who so far this year wagered nearly $3 billion on new stock issued by biotech companies--despite the fact that the entire industry sold only $4 billion worth of drugs and other products last year, and lost $2.9 billion in the process, according to Steven Burrill, a partner at accounting firm Ernst & Young. He doesn’t expect the industry as a whole to operate in the black until 1993.
The high stakes of the biotechnology business affect ordinary citizens as much as high-flying investors. The industry is expected to grow from 50,000 employees today to 500,000 by the end of the decade, creating thousands of new jobs in Southern California, where about 14% of the biotech companies are based.
Many investors pulled out of biotech stocks en masse Friday--at least for the time being. A leading star of the industry, Thousand Oaks-based Amgen, dropped $5.50 to close at $52, and Emeryville, Calif.-based Chiron dropped $6.75 to close at $63.75.
Xytronyx plunged $14.375 to $13.25 after the FDA told the company that its periodontal disease monitoring kit won’t be quickly approved.
And Immune Response closed down $6.25 at $34.75 after it dropped more than 25% Wednesday, when an FDA panel dampened hopes for quick approval for its AIDS vaccine.
Analysts say that the industrywide drop is only natural in a roller-coaster sector that saw the market value of its companies rise about 100% so far this year.
They say the basic confidence of investors in the industry has been demonstrated by the $1 billion they pumped into the stock of companies going public for the first time this year-- most of which had no products on the market at all, while they spent millions on research.
Biotechnology stocks are so volatile because they represent faith--or lack of it--in a future many years away. The typical publicly traded biotech firm often has only a handful of employees, and is 5 to 10 years from a product and profitability, said Burrill.
Because of that long lead time, “you get sharp eruptions of fear” about companies that often see no revenues for years after issuing stock, says Jim McCamant, editor of Medical Technology Stock Letter. By contrast, high-tech electronics companies see profits much sooner because they do not require the time-consuming process of passing federal drug regulations.
But, McCamant notes, “The most important thing is that because these stocks have been very strong for the past two years, they’ve been able to take advantage of that to raise a lot of money. That’s very good for future of medical research. There will be more discoveries sooner because of money from the investment community.”
