Ag-Biotech Field Starts to Ripen : Investing: Wall Street interest is taking root following the U.S. decision to treat genetically engineered foods like any other.
Calgene’s genetically engineered tomatoes have been the talk of the town for the last two weeks.
Television newscasts have had a field day with the story. A group of hoity-toity chefs in New York got huffy and said they wouldn’t use genetically engineered foods. In Hollywood, according to one pundit, dozens of would-be screenwriters are already at work on movie scripts starring mutant foods. On Wall Street, investors are doing a lot of talking--and a lot of waiting.
The May 26 announcement that genetically engineered foods will be regulated in the United States just like other foods at first stirred excitement among investors. There was a rush on shares of Calgene and other agricultural biotechnology companies--and prices went up. But the buzz has settled down and so have the stock prices.
Wall Street is continuing to take “a ‘show me’ attitude toward ag-biotech,” said securities analyst Margaret McGeorge of Sutro & Co. in San Francisco.
Marie Bourke, investor relations manager for Mycogen, a San Diego-based biopesticides company, agrees. While investors are pleased that the regulatory path now appears certain, and relatively clear, she said, they still want to see “products commercialized and product sales” before getting heavily into ag-biotech.
Significantly, however, ag-biotech companies are beginning to attract some large, institutional investors. Those investors, say analysts and the companies, had been holding back because of uncertainties about how the FDA would treat genetically engineered food products.
Even more institutional investors will be interested in ag-biotech stocks once they see and taste the products, said George Dahlman, an analyst with Piper, Jaffray & Hopwood in Minneapolis.
It could well be another four to five years before most of the agricultural biotechnology companies are producing a steady stream of revenue from genetically engineered products. The tomato--which most likely will be on the market next year--is far ahead of other products in the development and review process.
And while Davis-based Calgene was harvesting another crop of its tomatoes at its test fields near Indio, Calif., this week, it was still hoping to reap substantial financial rewards for being first in line.
Calgene Chief Executive Roger Salquist said that compared to other biotechnology companies, such as those making pharmaceuticals and diagnostics, ag-biotech companies are still well valued in the market.
Calgene’s stock performed well on the day of the FDA announcement, closing at $15.37 a share, a 25% gain from the week before. Most remarkably, nearly 2 million shares were traded--14 times the volume of trades the week before. The stock closed Thursday at $15.50 a share.
Salquist said institutional investors “still have to be convinced we are real companies” with the management and financial savvy to go from the laboratory to the marketplace.
Shares of other agricultural biotech companies saw heavy trading and some price increases May 26; by Thursday, most had gently eased back to the modest prices they were fetching before the FDA announcement. However, considering that Wall Street has been very cool to stocks of pharmaceutical-biotech companies, the ag-biotech sector is doing very well, McGeorge said.
Just a few months ago, only three securities analysts had routinely followed Calgene. One was Jeffrey Kraws, of Alex. Brown & Sons in New York, who said the number of analysts following agricultural biotechnology stocks has at least doubled in the last month as more brokerage houses are recognizing the value of the sector. Having an analyst follow a company or group of companies is often the first step to attracting investors.
“These companies’ shares have vastly under-performed the market and gone nowhere for several years,” Kraws said. “They are significantly under-followed, undervalued and overlooked. The reason is that people have thought, as they did in the early days of biotechnology, that these things were many years in the future, when the reality is, agricultural biotechnology is here today, (it) isn’t 10 to 15 years off.”
