Investors Return to the Biotech Fold

Bloomberg News

Department of Deja Vu: Biotechnology stocks soared Friday amid new hopes that genetic discoveries will lead to breakthrough new products.

Though the biotech sector soared at the end of last year and the first part of this year, it has been free-falling since last month amid concerns that the speculative stocks rose too far, too fast. Investors have also been worried that it's too soon to say which companies working in the field will profit from scientific advances.

Friday's rally was led by genomics stocks, which helped lift the 17-member Amex biotechnology index by 14%, its biggest one-day percentage increase in nine years. Three of the four biggest gainers in that index were genomics stocks such as PE Corp.-Celera Genomics Group (ticker symbol: CRA), which rocketed $16.25 to $82.75 on the New York Stock Exchange, and Genome Therapeutics Corp. (GENE), which climbed $3.75 to $17.13 on Nasdaq.

Diversa Corp. (DVSA) gained $4.38 to $27.56. The company issued a news release saying it has won a patent that expands protection of its technology to collect and store genetic samples.

Genomics refers to the discovery, analysis and manipulation of genetic information to help develop new drugs, agricultural products and industrial processes.

"People are beginning once again to appreciate the promise that genomics companies are offering for changing the practice of medicine," said Dennis Harp, a Deutsche Banc Alex. Brown biotechnology analyst.

The excitement over the prospects of genomics was shared by retail investors, whose hyperbole helped push many genomics stocks to record highs earlier this year.

"Next week genomics will be red hot!" screamed an item on Celera's Yahoo message board posted by somebody with the nickname "Internet--Gambler." "Load up before other people have had a chance."

The group began picking up Friday as researchers reported success in a gene-therapy treatment on two babies with "bubble-boy" syndrome, which destroys the immune system.

That news, coupled with recent medical reports on advances, such as new work on cloning animals, rekindled confidence about the financial prospects for genomics companies, analysts said.

Now investors are starting to think that biotech stocks have fallen too far, too fast, said Meirav Chovav, an analyst with Salomon Smith Barney. Nasdaq's biotech index plunged more than 40% over two months.

Tim Bepler, who manages the $170-million Orbitex Health and Biotechnology Fund, said he's interested in stocks in companies whose shares fell after the market soured last month that are also likely to become profitable over the next couple of years.

"We've been buying some of these stocks with both hands for the last week or two," he said. "There's a new generation of biotech companies coming to the forefront that will be hugely profitable over the next few years."

His top picks include Enzon Inc. (ENZN), which rose $6.19 to $37.25 on Friday. He said he also recently bought shares in Protein Design Labs Inc. (PDLI), Icos Corp. (ICOS) and Titan Pharmaceuticals Inc. (TTP). In Friday's trading, Protein Design rose $15.81 to $101.50, Icos rose $2.13 to $40.25 and Titan rose $4.63 to $32.25.

But Bepler said it's too soon to say whether biotechnology stocks have pulled out of their seven-week slump."I'm not exactly sure where the market is going in the short term," he said. "I think the overall market will be whipsawed by economic data. We're not sure when the bottom is going to hit, [though] we hope it has already."

Among the big biotechnology shares that gained Friday were Genentech Inc. (DNA), up $10.13 to $120; Immunex Corp. (IMNX), up $4.06 to $39.38; and Amgen Inc. (AMGN), $1.88 higher at $56.

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Wild Ride

Like many biotech stocks, Celera Genomics has been on a roller coaster. After surging Friday, the stock is back in the black year-to-date. Weekly closes:

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Friday: $82.75, up $16.25

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Source: Bloomberg News

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