4Q Financial Markets Preview: Room to maneuver

The public markets are expected to be volatile at least until the November elections in the U.S., and, accordingly, safe haven biotech stocks - companies with profits - are performing better than their loss-making counterparts. Indeed, the profitable constituents of the BioCentury 100 Index began to separate themselves from the non-profitable companies at the end of April.

If defensive investing is the prognosis for the remainder of the year, biotech will not be shut out, as an increasing number of companies have turned the profit corner, or at least have a growing revenue stream (see "Performance by Profitability," A2).

In addition, there's a queue of late-stage milestones among loss-making companies coming up in the quarter that should keep investors interested in their paper. As a result, bankers polled by BioCentury think that such companies will not have problems tapping into the markets.

However, many buysiders, bankers and VCs expect a muted fourth quarter for new issues. Although there may be a trickle of new filings - two companies put their hats into the ring last week - the consensus is that the majority of companies already in the queue won't go out until 2005.

And on the follow-on front, PIPEs and other directed placements may be the vehicle of choice for low cap public companies with downtrodden prices to match.

Election complexion

Right now, it is hard to tell whether the biotech bull that began on March 7, 2003, has been put out to pasture. Both biotech and the overall markets are up from last year's low point, but all of these groups gave back some gains in the third quarter. Biotech led the downward charge. Not helping the group was a relatively small and bland slate of approvals in the third quarter (see "3Q Wrap-up," A10).

Michael Cohen, managing director at Deutsche Bank, said that bullish or bearish sentiments can vary from week to week. "Given the volatility with the election and other macro issues, a couple of

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