Put any two people together at any biotech meeting and the talk invariably turns to the "bear market" for biotech stocks and what can be done about it. Ironically, the bear market just may be arriving. The BioCentury 100 Price Level index shows that the sector carried a rising price cycle in this year's second quarter from the fall of 1995. But since hitting 1035.13 on April 3, the BC100 has trended steadily down. The index closed the quarter at 881.53, off 14 percent.

A large part of the bear mentality really has to do with the fact that biotech has been underperforming everything else in the stock market, as well as with the fact that the hot equity markets have finally, in a word, disappointed. The NASDAQ Composite rose 3 percent in the second quarter, while the S&P 500 rose 3 percent and the Dow Jones Industrials added 2 percent.

Perhaps hardest on biotech companies was investors' continued love affair with pharmaceutical stocks. The American Stock Exchange Pharmaceutical Index of 15 big cap pharma companies rose 7 percent in the second quarter, and is up 26 percent on the year. The BioCentury 100 is down 8 percent on the year, while the NASDAQ Composite, S&P 500 and the Dow Jones Industrials are up 21 percent, 17 percent, and 13 percent, respectively.

Bolstered by Europe, the industry managed to raise $1.1 billion in the second quarter, down from $2.1 billion in the first quarter, which was driven by a handful of big convertible debt vehicles. The second quarter numbers compare favorably with recent years, ranking this year's second quarter take behind the massive $3.5 billion raised in the second quarter of 1996 (see adjoining table).

But the IPO and follow-on markets continue to be finicky, providing the source of frustration. Companies managed to carve out $233.5 million in IPO dollars in the second quarter, bringing the year-to-date take to $464.3 million. Follow-on monies totaled $167.2 million, reaching $426.5 million year-to-date.

The only signs of life have been in private financings of public companies, which have raised $1.7 billion year-to-date, $378.2 million in the second quarter. Venture financings continued at a steady pace, with private biotechs raising $314.2 million in the quarter, down a bit from $325 million raised in the first quarter.

A healthy European financing environment accounted for $203.7 million (19 percent) of the money raised in the second quarter. By comparison, the $411.9 million in European financings in the first quarter totaled 20 percent of the sector's take.

What the chart says

Although the market for traditionally underwritten financing is bleak, the sector's price chart clearly illustrates the difference between a real bear market and the current situation (see above).