Sizing up the buyers and sellers

Where others stand can do a lot to determine one's own choices. With the public equity markets still doling out funds by the penny, companies don't want to waste their time chasing after institutional investors who aren't buying.

To find out just who is and who isn't into the biotech sector, The Carson Group has created a system for ranking the investment behavior of institutional investors. The current "Power Rankings" are for the second quarter, the latest for which information is available.

The Carson Group, a New York firm which provides market intelligence services to public companies, uses a weighted calculation of three criteria for each fund: quarterly net cash flow into or out of the sector; number of new positions; and number of net additional positions.

To build a picture of funds that might have an active interest in second- and third-tier biotech companies, The Carson Group deleted all investments in Tier One companies. The list is further restricted to institutions with more than $250,000 invested in biotech.

Creating the rankings

It also excludes all "passive" investors, i.e., institutions that use an index or other quantitative criteria to determine investment decisions, as opposed to fundamental analysis of individual companies. In addition, it excludes funds that have positions only as a result of venture capital distributions, and which don't buy stocks on the open market. Finally, it excludes institutions with only one biotech position. The resulting universe includes 188 institutions.