In the 1980s and most of the 1990s, investors looking to generate 15-plus percent, beat-the-NASDAQ-type returns didn't have to look much beyond the "A-B-Cs" of the industry - Amgen Inc., Biogen Inc., Chiron Corp. and the other top tier players, such as Genzyme General, Genentech Inc. and Immunex Corp. As the first profitable biotech companies, this group had a certain level of consistent momentum.

However, with the growing maturity of some of the top tier products, generating above average returns isn't as easy as picking the "ABCs." Indeed, the trailing 18-month performance of BioCentury's top tier companies - those valued above $3 billion - has been mixed. In fact, investors had less than a 50-50 chance of making money by placing bets on the 17 companies that were in that group as of Dec. 31, 1999.

(The 18 month performance is measured through last Thursday, thanks to the NASDAQ snafu on Friday that produced unreliable closing prices - see Ebb & Flow, A19.)

The top tier's performance can be divided into four groups: the five top-performers that saw their market cap double in the past 18 months; three above-average performers that outperformed the 5% gain produced by the BioCentury 100 index; the five under-performers that failed to keep up with the index; and the bottom-performers, which saw their value cut by at least half (see "The Big Boys," A2).

The mixed outcomes for the top group shows that not all companies in the top tier are created equal. Some are perceived as having reasonable upside and sustainable growth, while others have lost momentum. Nevertheless, all but four were better off than the NASDAQ Composite, which slipped 48% over the same period (Dec. 31, 1999 to June 29, 2001).

Life at the top

Not surprisingly, the top three market cap performers were driven by strong product sales: Alza Corp. (Mountain View, Calif.), now owned by Johnson & Johnson (JNJ. New Brunswick, N.J.); GENZ and Idec Pharmaceuticals Corp. (IDPH, San Diego, Calif.).