following orders booked (stop/buy), valid end/month:
CYCH 20000@$1.5575
BALT 1000@$8.87
QCOM 500@$81.25
MEDI 1000@$58.65
HGSI 500@$59
AFFX 800@$59
GENZ 500@$69
CRA 300@$36.85
QGENF 200@$ 27.85
Performance bis 03/01: 48%
Info (Biotech):
Are the biotechs different? -- 6:10 AM EST
by Wayne Lottinville
"Could the biotechs become the market's next dot-coms?" That was the question posed in the Nov. 13 issue of
Barron's by Michael Shaoul, executive vice president of the broker-dealer Oscar Gruss & Son. I have a lot of respect for
Barron's. I find much of its analysis both precise and prescient. And it has certainly proven itself capable of moving
markets-as it did last spring when it ran several critical pieces about dot-com valuations. The downturn the biotechs
suffered on the heels of Shaoul's analysis may have been another demonstration of that, although it's difficult to tell if
the article was responsible or if the biotechs simply got caught up in the general sell-off in the tech sector generally.
But never mind. While I think Shaoul's arguments are worth considering, I believe he is wide of the mark. Here's why.
Biotechs do resemble the dot-coms and other tech stocks in many ways. It's easy to find developmental-stage
companies in all segments of the technology sector, including biotech. These are companies with a hot idea that could
prove very profitable and that are spending money much faster than it's coming in to develop that idea and bring it to
market. Biotechs, like the other techs, tend to be loaded with venture capital funding, may go public too early by
historical standards, and may require several rounds of funding, public or otherwise, before they reach a self-supporting
stage-that is, profitability. Importantly, biotechs, like dot-coms, are quite risky. Investors can lose millions on what may
appear to be an idea too good to fail, but then, for any number of reasons, does fail.
Shaoul is right about one thing: It is extremely difficult to value many tech stocks, including the biotechs. But even if I
can only roughly approximate the current market value of a biotech, as a group they generally have additional value not
readily accessible to the rest of the technology sector. These differences are what separates biotech from much of the
rest of the technology sector and make the biotechs a much better long-term investment.
Take barriers to entry as an example. These include money, time, specialized knowledge and intellectual property. A
dot-com can be set up by just about anyone, as the fact that many people have personal Web pages demonstrates.
The amount of money it takes to get up and running is minuscule compared to the amount of money it takes in the
biotech sector. It can easily take $300 million to $500 million to discover a drug that might be useful and get it through
the regulatory process to market.
A Web site seldom requires more than a day to a few months to launch. A drug can take 10 to 15 years. Interestingly,
much of the biotech industry is about 10 to 15 years old, and as a result, I expect a host of new drugs to enter the
marketplace in the next decade. This adds considerable value to the group as a whole.
While the language and terminology of dot-com Web sites is specialized and requires quite a bit of education and
experience to learn, practitioners don't generally have doctorate degrees in their specialty, as many biotech scientists do.
After all, screwing up a dot-com isn't that big a deal, but screwing up drug development could cost human lives.
While many of the technology stocks depend on protecting intellectual property rights, generally in the form of patents,
the biotech industry has a fairly well-established history built around the practice. True, gene patenting is controversial
and ultimately may not prove defensible, but patents such as the one Amazon.com claims on its one-click ordering
process are downright laughable. The whole patenting process is on the verge of a crisis, but I bet a greater percentage
of biotech patents will ultimately hold real value.
Two additional factors that favor biotechs are demographic trends, the aging population in particular, which means we
will demand more and better therapies for our increasing ailments as we grow older. With the recent good years in the
stock market, many older people now have the wherewithal to finance demands for better health.
Lastly, an investment in most of the biotech industry is a "do-good" for humanity investment that may also do good
things for your wealth. Laying aside issues about agricultural "frankenfood" biotechs for the moment, biotech companies
are in the business of developing therapies that will make people's lives better. Can the same be said about the rest of
the technology sector? Some of it will make our lives better, no doubt, but some will just increase the pace and demands
on our lives.
"Volatility" and "biotech" are nearly synonymous. Biotech stocks have seen wild swings in their stock prices since day
one, and that will continue. Just recently, for example, the biotechs appeared to be horrible investments for much of
1996, 1997 and 1998. Even in 1999 it was more the large, already successful biotechs such as Amgen that carried the
group higher for most of the year. Industry meetings were turning into tearful accounts by smaller companies of their
struggles to move drugs through the development process with no money and no one apparently interested. Then, in
late 1999, everyone got interested. The stocks went on a tear, multiplying several times in price into March, when all of a
sudden they tanked even faster than they rose. But they didn't drop all the way back, and many were again recovering
nicely until the recent post-Barron's sell-off.
The recent biotech sell-off presents savvy investors with yet another opportunity to build positions in companies that
have the potential to really brighten the future for all of us. To me, these companies make much better investment sense
than do many of the dot-coms I have seen of latej, although both technologies hold extreme risk. For those who don't
want to build their own portfolio of biotech stocks, a mutual fund or exchange-traded index shares generally offer
well-diversified exposure to this technology sector.
Wayne Lottinville, CFA, RedChipTM analyst
CYCH 20000@$1.5575
BALT 1000@$8.87
QCOM 500@$81.25
MEDI 1000@$58.65
HGSI 500@$59
AFFX 800@$59
GENZ 500@$69
CRA 300@$36.85
QGENF 200@$ 27.85
Performance bis 03/01: 48%
Info (Biotech):
Are the biotechs different? -- 6:10 AM EST
by Wayne Lottinville
"Could the biotechs become the market's next dot-coms?" That was the question posed in the Nov. 13 issue of
Barron's by Michael Shaoul, executive vice president of the broker-dealer Oscar Gruss & Son. I have a lot of respect for
Barron's. I find much of its analysis both precise and prescient. And it has certainly proven itself capable of moving
markets-as it did last spring when it ran several critical pieces about dot-com valuations. The downturn the biotechs
suffered on the heels of Shaoul's analysis may have been another demonstration of that, although it's difficult to tell if
the article was responsible or if the biotechs simply got caught up in the general sell-off in the tech sector generally.
But never mind. While I think Shaoul's arguments are worth considering, I believe he is wide of the mark. Here's why.
Biotechs do resemble the dot-coms and other tech stocks in many ways. It's easy to find developmental-stage
companies in all segments of the technology sector, including biotech. These are companies with a hot idea that could
prove very profitable and that are spending money much faster than it's coming in to develop that idea and bring it to
market. Biotechs, like the other techs, tend to be loaded with venture capital funding, may go public too early by
historical standards, and may require several rounds of funding, public or otherwise, before they reach a self-supporting
stage-that is, profitability. Importantly, biotechs, like dot-coms, are quite risky. Investors can lose millions on what may
appear to be an idea too good to fail, but then, for any number of reasons, does fail.
Shaoul is right about one thing: It is extremely difficult to value many tech stocks, including the biotechs. But even if I
can only roughly approximate the current market value of a biotech, as a group they generally have additional value not
readily accessible to the rest of the technology sector. These differences are what separates biotech from much of the
rest of the technology sector and make the biotechs a much better long-term investment.
Take barriers to entry as an example. These include money, time, specialized knowledge and intellectual property. A
dot-com can be set up by just about anyone, as the fact that many people have personal Web pages demonstrates.
The amount of money it takes to get up and running is minuscule compared to the amount of money it takes in the
biotech sector. It can easily take $300 million to $500 million to discover a drug that might be useful and get it through
the regulatory process to market.
A Web site seldom requires more than a day to a few months to launch. A drug can take 10 to 15 years. Interestingly,
much of the biotech industry is about 10 to 15 years old, and as a result, I expect a host of new drugs to enter the
marketplace in the next decade. This adds considerable value to the group as a whole.
While the language and terminology of dot-com Web sites is specialized and requires quite a bit of education and
experience to learn, practitioners don't generally have doctorate degrees in their specialty, as many biotech scientists do.
After all, screwing up a dot-com isn't that big a deal, but screwing up drug development could cost human lives.
While many of the technology stocks depend on protecting intellectual property rights, generally in the form of patents,
the biotech industry has a fairly well-established history built around the practice. True, gene patenting is controversial
and ultimately may not prove defensible, but patents such as the one Amazon.com claims on its one-click ordering
process are downright laughable. The whole patenting process is on the verge of a crisis, but I bet a greater percentage
of biotech patents will ultimately hold real value.
Two additional factors that favor biotechs are demographic trends, the aging population in particular, which means we
will demand more and better therapies for our increasing ailments as we grow older. With the recent good years in the
stock market, many older people now have the wherewithal to finance demands for better health.
Lastly, an investment in most of the biotech industry is a "do-good" for humanity investment that may also do good
things for your wealth. Laying aside issues about agricultural "frankenfood" biotechs for the moment, biotech companies
are in the business of developing therapies that will make people's lives better. Can the same be said about the rest of
the technology sector? Some of it will make our lives better, no doubt, but some will just increase the pace and demands
on our lives.
"Volatility" and "biotech" are nearly synonymous. Biotech stocks have seen wild swings in their stock prices since day
one, and that will continue. Just recently, for example, the biotechs appeared to be horrible investments for much of
1996, 1997 and 1998. Even in 1999 it was more the large, already successful biotechs such as Amgen that carried the
group higher for most of the year. Industry meetings were turning into tearful accounts by smaller companies of their
struggles to move drugs through the development process with no money and no one apparently interested. Then, in
late 1999, everyone got interested. The stocks went on a tear, multiplying several times in price into March, when all of a
sudden they tanked even faster than they rose. But they didn't drop all the way back, and many were again recovering
nicely until the recent post-Barron's sell-off.
The recent biotech sell-off presents savvy investors with yet another opportunity to build positions in companies that
have the potential to really brighten the future for all of us. To me, these companies make much better investment sense
than do many of the dot-coms I have seen of latej, although both technologies hold extreme risk. For those who don't
want to build their own portfolio of biotech stocks, a mutual fund or exchange-traded index shares generally offer
well-diversified exposure to this technology sector.
Wayne Lottinville, CFA, RedChipTM analyst
