By Steve Edelson
& Shaun Brown
Staff writers

Although biotech stocks have taken a drubbing so far this quarter, fund managers do not appear to be getting out of the group or increasing the percentage of cash holdings in their funds. Nor does there seem to be a net drain out of biotech funds.

Since Sept. 1, the highest the NASDAQ has been since July, the tech-laden Composite index has fallen 18 percent, while the BioCentury 100 has fallen only 8 percent. The declines in net asset value at two biotech mutual funds, the Fidelity Select Biotechnology fund and the Franklin Biotechnology Discovery Fund, also have tracked the biotech group. Since Sept. 1, the Franklin fund has dropped 9 percent and the Fidelity fund is off 6 percent. Both the BC100 and NASDAQ were up 5 percent last week.

Sven Borho of OrbiMed Advisors noted that "we're still seeing good money flows even in these turbulent times." Kurt von Emster, a portfolio manager at Franklin, agreed that fund flows continue to be positive. He said that although some investors have rotated back into technology from biotech, "there is more new money coming in from pharma investors and new biotech investors."

Going forward, Borho sees strong money flows for biotech funds coming from both retail investors and traditional growth fund investors. "The event calendar for the rest of the year is full of conferences and scientific meetings," he said. "Thus we should see some upward movement in biotech."

With more investors coming in the entrance than going out the exit, funds are not cashing out, even under the choppy market conditions. Instead of getting into cash, Borho said he takes the opportunity to add to favorites in times of weakness. "Nobody is really letting cash accumulate," he said. "There's some product-oriented biotech companies out there that are quite depressed in terms of valuation. You also see some genomics companies with near-term revenues and profits undergoing corrections."

von Emster agreed that instead of cashing out, "funds are using weakness as a time to buy."

Haven't I seen you before?

Monsanto (MON) reappeared in public, raising $700 million in an IPO of 35 million shares at $20 as an agbiotech spinout from parent Pharmacia (PHA), which acquired MON in March. The offering has a 5.25 million-share overallotment, and was underwritten by Goldman Sachs, J.P. Morgan, Bear Stearns, Salomon Smith Barney, Morgan Stanley and Merrill Lynch. Following the IPO, PHA owns 86 percent of MON, which closed Friday at $23.125, up $3.125 (16 percent) from its IPO price.