Momentum Building for Hot Biotech Stocks
The new biotech rush is on. Is it a prescription for disaster?
With biotechnology stocks sizzling, start-ups are scrambling to get in on the action.
According to Prudential Securities analyst Caroline Copithorne, 11 biotechs have filed already this year to make initial public offerings. That compares with 11 biotech companies for the entire 1999 calendar year.
Genomics stocks have led the biotech sector’s charge. Affymetrix Inc. (ticker symbol: AFFX), for example, was trading at about $36 a year ago. On Tuesday it closed at $264.75 on Nasdaq.
And newer genomics specialists have been performing like Internet IPOs: Last week, Sequenom Inc. (SQNM) of San Diego soared more than 200% to close at $79.25 in its trading debut. On Tuesday it closed at $96.
Another big launch came from Antigenics Inc. (AGEN) of New York, a biotech firm specializing in proteins, whose stock rose 241% to $61.38 in its debut--a nice chunk of change considering that protein researchers were about as popular on Wall Street as Rubik’s cube makers a year or so ago. The shares have since settled to $46.25.
New biotech companies lined up at the IPO gate so far in 2000 include Allos Therapeutics Inc. of Denver, which hopes to raise $69 million; Diversa Corp. of San Diego, which hopes to raise $85 million; and Rigel Pharmaceuticals Inc. of South San Francisco, which is seeking $100 million.
Other biotechs in the lineup include Drug Abuse Sciences, Rigel and Taxol. Their technologies range from genomics to antibody-based drugs to small-molecule drug discovery.
“There’s been a rush to file because no one wants to be at the tail end of this,” Copithorne said, referring to the current biotech boom. She also noted that most companies are racing to push through their deals before the summer sets in, a season when IPOs traditionally don’t fare as well.
Existing market players are trying to get in on the “bio-palooza” as well, with either follow-on common stock or convertible securities offerings. Abgenix Inc. (ABGX), Affymetrix, Curagen Corp. (CRGN), Genzyme Transgenics Corp. (GZTC), Gene Logic Inc. (GLGC) and Human Genome Sciences Inc. (HGSI) have filed for such deals within the last few weeks, and you can’t blame them: They all know that the current ride could be short-lived, and no one is going to turn down an opportunity to raise cash. Their shares are up from 71% to 179% so far this year.
Some analysts say such a flurry of offerings will end up hurting the industry in the long term by spreading precious capital around thinly. Likewise, the heated climate could give rise to a flood of IPO filings by immature companies, further draining the capital pool. As those companies go under one by one, according to the naysayers, biotech will once again be branded a loser investment. And all this will deliver biotech back to the dark days of the early 1990s, when the first biotech boom went bust.
But other industry watchers disagree. Copithorne points out that because the investment window for biotech has been closed for so long, the first in line to raise cash will be the top- and middle-tier companies, many of which have already proven themselves to be viable if not profitable. Copithorne also notes that the current roster of IPOs is far from fly-by-night.
“One upside to all of this is that the quality of the deals coming out is quite high because there’s been no window since 1996,” she said.
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Booming Biotechs
The Amex biotechnology index of 15 stocks, which rose 6% on Tuesday to a record, is up 38% this year. Weekly closes and latest:
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Tuesday: 542.05, up 31.74
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Source: Bloomberg News
