BioCentury
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Big cap selloff

April 2, 2001 7:00 AM UTC

The BioCentury 100 Index plunged 6.2% on Monday, with decliners outnumbering gainers 86-10. The drop doubled the 3.1% lost by the NASDAQ Composite and far outpaced the 1% shed by the DJIA. Pushing the biotech sector downward was a report by Lehman Brothers analyst Rachel Leheny, who downgraded bellwethers Genentech (DNA), MedImmune (MEDI) and Biogen (BGEN) to "buy" from "strong buy." She warned that a deceleration in earnings growth may lead to a 20-30% correction for big cap biotech companies. The analyst reckoned that the PEG ratio (price-to-earnings growth rate) for large cap profitable biotechs may slip to 2 from 2.4 within six to nine months - a move she said may be hastened by high-profile earnings disappointments. Leheny also noted that there has been a lag in biotech devaluation relative to the NASDAQ since March 1999.

On the positive side, Leheny's report stated that recent biotech IPOs offer "very interesting long-term investment opportunities." She also suggested that companies with products to launch within one year as well as well-positioned genomics plays "may offer good near and mid-term upside." In the latter camp she placed Incyte (INCY), which was down $1.22 to $14.13 and Sequenom (SQNM), which was up $0.594 to $9.094 on Monday. ...