2005 Financial Market Preview: Some room to run

Conventional wisdom is that there can be no bull market without momentum investors, and it's generally agreed that the momentum crowd exited the biotech sector in May. Nevertheless, from the second half of 2004, the group managed to run up nicely without momentum investors and as a result, the financing window rewarded both companies and investors.

Bankers polled by BioCentury think the financing opportunities will continue in 2005 because investors are making money - both on IPOs and follow-ons - in the current market.

Indeed, on the financing front, biotech surpassed the $20 billion mark globally for only the second time in the industry's history. Amgen Inc. (AMGN, Thousand Oaks, Calif.) pushed the sector over the threshold with its $2 billion debt financings in November (see BioCentury, Nov. 22, 2004).AMGN's deal made the fourth quarter the strongest of the year, as biotech companies raised a total of $7.7 billion.

The venture crowd also likes the outlook for 2005. Funds raised more than $1.1 billion in the waning weeks of the year, so they are starting the year with a good amount of dry powder.

In the meantime, optimists are looking for broad gains in the public space, noting that the biotech group is looking under-bought compared to other sectors of the market that ran up to close the year.

2004: Setting the stage

Biotech finished strong, but not as strong as other sectors on NASDAQ. In the fourth quarter, the BioCentury 100 Index climbed a tidy 8% and closed the year at 1582.1. But the NASDAQ index climbed 15% over the same period, as biotech was out-gained by almost every other sector index on the exchange, including computers, telecom and transportation. The lone exception was NASDAQ's Bank Index, which also gained 8%.

On the other hand, the biotech group was not dragged into the COX-2 undertow, which has left the Amex Pharma benchmark flat since the summer doldrums.

For the year, the BioCentury benchmark was up 10%, compared to NASDAQ's 9% uptick, while pharma trailed with a 6% decline (see "Index Performance," A12).

Because biotech didn't close as fast as most of the other

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