Monday, October 1, 2001
Blinders often are used on race horses to keep the animals
focused on the race at hand, and away from the distractions and chaos going
on around them. Biotech CEOs and investors probably wouldn't be faulted for
wanting a similar technology that could keep them focused on the end game.
While it can be disheartening that fundamentals go unrewarded
in the current market, there's a growing consensus that when - not if - the
markets return, biotech will be quick off of the bottom. This reflects both
the industry's fundamental progress and - ironically, given biotech's historical
volatility - investors looking for safe places to park their money.
While the wait poses no problem for well-capitalized companies,
there is growing concern about companies that will need to tap funds over the
next 12 months. Biotech's balance sheet arguably is as healthy as it has ever
been, thanks to the $47.1 billion raised in the past seven quarters. But there
is a growing list of companies - 81 by BioCentury's tally - with less than two
years of cash.
Despite good balance sheets and strong fundamentals - as of
last Friday, biotech companies had compounds in 288 Phase II/III or Phase III
trials - the BioCentury 100 slid 28% in the third quarter, putting it down 44%
on the year.
The good news was that biotech wasn't singled out on the quarter.
With the exception of the Amex Pharmaceutical Index, all the major indices traded
down significantly in the quarter (see "A Quarter to Forget", A2).
A bit of solace also can be found in the fact that the BioCentury
100 outperformed (read: lost less) than the NASDAQ Composite, which shed 31%
on the quarter. (However, the NASDAQ is slightly beating the BC100 performance
year-to-date, as it's down 39% on the year.)
On the biotech side, companies valued under $1 billion were
hit harder on the quarter. The TF/Carson Tier I Index - which consists of 20
large cap companies valued over $1 billion - fell $33.8 billion (15%) and now
stands valued at $189.1 billion, while its Tier II Index of 180 companies valued
less than $1 billion shed $37.6 billion (30%) and is now valued at $89.8 billion.
"The good news is that, while the economy is in a recession,
biotech isn't," said Robertson Stephens banker Mark Simon. "But we're
dealing with exogenous factors overwhelming this good news."
Flow of funds
Key to the recovery of the group is a reversal in the flow of funds.