Monday, January 17, 2000
Two things were obvious to anyone paying attention at this
year's Chase H&Q Healthcare Conference in San Francisco: the sector is hotter
than it has ever been, and there is an emerging group of public companies -
generally dismissed a couple of years ago as too early or with pipelines that
were too thin - that are suddenly looking pretty respectable. They have compounds
nearing commercialization and they have pipelines with enough products to withstand
Solving the money mystery
While it is sometimes hard to tell exactly who is investing
in biotech at any given moment, dedicated biotech investors and companies have
been more than usually unsure of exactly where much of the hot money flooding
genomics companies and other high-flyers is coming from.
Typical was the comment by David Goeddel, CEO at Tularik Inc.
(TLRK, South San Francisco, Calif.). "Stocks are moving a lot on small volume,
but I don't know if it's retail or institutions," he said.
Mitch Silber of The Carson Group sees three drivers of the
sector. Most important is the entry of new funds within the large institutions.
"We're not seeing that many new fund names, but the dynamic within those institutions
is what's fueling much of the rise," he said.
"Usually within investment houses, there's an analyst who specializes
in biotech investing for the whole house. Now, the other fund managers are going
to the biotech analyst and saying 'I need to put money to work in biotech.'
The generalist aggressive growth funds and tech funds are all having to put
money to work in the sector," he said.
"So it's the same institutions, but it's more of their funds.
And these funds have to invest in size because they're much bigger than biotech
funds," he added. "Plus, having gone through the internet experience, they're
not as tied to valuation metrics. They're willing to buy at any price because
they're being compared to other fund managers."
The second piece of the puzzle is retail, he said. "There is
a huge retail component that there has never been before in genomics and biotech
in general. This has grown since the summer when retail investors transitioned
from internet stocks to biotech."
Number three in terms of importance are index investors, according
to Silber. "These investors have to chase the performance of indices such as
the Russell 2000, so they reinforce buying by the big fund managers," he said.