Rising tide

There are bull markets and bull markets. The current rally, which began in December, has a feeling of sobriety - so far - that the great blowout of 1991-92 lacked. Yet it has finally become sufficiently noticeable that everyone who hesitated to say "uptick" - for fear that it would evaporate - finally is willing to acknowledge that the sector is showing signs of life.

Which is not to say that all is wonderful. As the BioCentury 100 index shows, the sector is still far below its October 1993 high of 1104, and still further below its December 1992 high of 1253. And those numbers are below the highs of the winter of 1991-92. Nevertheless, Friday's close of 951.71 is significantly higher than the industry's nadir of 653.75 in December 1994, and BioCentury's volume charts have shown higher volume on advancing than on declining stocks for 11 of the last 12 weeks.

As could be expected, the top tier stocks have led the recovery. According to the Carson Life Sciences Indexes, the top group hit its low in April 1994 and has been rising steadily ever since. The rest of the group hit bottom last December, remaining there until it started rising again in May.

1995 leaders

But the Carson indexes also show that it's the small cap stocks that have had the best performance so far this year - up 42 percent compared to a 23 percent increase in the large cap stocks, mainly due to the severely depressed prices the lower cap companies reached in 1994 following clinical failures, the failure of investment bank D. Blech & Co., short selling and heavy tax loss selling in the fourth quarter.

Data collected by The Carson Group indicates that as of March 31, 1390 institutions had Tier One holdings worth $10.2 billion, and 407 institutions had Tier Two/Three holdings worth $3.6 billion.

Still, eight months of overall upswing is nothing to sneeze at, and industry observers can point to a number of factors that have come together to make the sector more attractive to investors. These include everything from the overall state of the stock market, to an influx of money from high tech stocks, to some good clinical results this year.

Looking at the market from a technical viewpoint, Merrill Lynch technical analyst George Constantine said it appears that the rally has broadened out recently.

But he cautioned that he doesn't think this particular upswing will last too long. "I think selected second and third tier stocks are likely to continue to do better," he said. "But I don't think you'll see a broad, sustained move in general for the second and third tier stocks, though selected ones may even outperform leaders like Amgen."

Constantine suspects that some of the stocks that have been the strongest performers this year are getting close to an intermediate-term peak. "My guess is some will flatten out and probably by the early part of the fourth quarter some of them will begin to correct," he said.