San Diego’s biotech leaders have had much to cheer about lately. The Nasdaq Biotech Index, where most local biotech stocks are listed, has been sizzling hot.
Within the last three months biotechnology stocks soared to stratospheric levels after nearly seven years of disinterest.
But now, according to one analyst, the boom has gone bust.
“The ‘biotech bubble’ has already burst, because stocks have retracted 60 to 80 percent of their upward movement,” said Fred Middleton, general partner at the venture capital firm Sandeling Ventures in Menlo Park.
Middleton predicted biotech stocks will balance out in one to three months.
Most investors have spent the last three months racing for the hottest deals in biotech. Never before have biotech stocks risen so fast and so high in such a short period of time, said Bud Leedom, publisher of the San Diego Stock Report.
“They went too far, too fast,” Leedom said. “The market was ripe for a rebound, but it happened too fast.”
Analysts agree the rapid rise of biotech stocks was spawned in part by investors who, enriched by Internet returns, turned to biotech stocks as the next hot thing.
Recent discussions that the private firm Celera Genomics in Rockville, Md., would complete the sequencing of some 100,000 human genes this year or prior to the publicly funded Human Genome Project sparked investors’ interest. They started funneling money into fast-rising biotechs that planned to sell data on genetic research.
Up and Down
As a result, San Diego-based biotech firms involved in genomics, such as Aurora Biosciences Corp. and Invitrogen Corp., saw their stocks soar in recent months.
On March 14, however, investors’ confidence was shaken. That day, the Nasdaq biotechnology index tumbled a record 13 percent after President Bill Clinton’s announcement of an agreement with Great Britain to share data of the human genome.
The announcement prompted investors to sell shares in most biotech firms, because they saw it as a threat to intellectual property.
An announcement the following day by the White House that the “statement was not about patents” led to a rebound in biotechnology stocks, though stocks of several gene-mapping firms remained down.
Some analysts said that while the recent sharp correction in biotech stocks did significant damage to the stock, investors won’t pull away from biotech.
The recent frenzy allowed many biotech firms to raise enough money to fund costly drug development and clinical trials for years to come, they said.
10 Times More Investment
So far this year, public biotech firms have raised more than 10 times as much money as they did during the same period last year, reported the Medical Technology Stock Letter.
Much of the money came from secondary stock offerings and private placement of stock to institutions, but also from the sale of convertible debt by larger firms , altogether bringing the total financing to more than $8 billion so far, the stock letter reported.
Many San Diego biotech stocks were among them.
Aurora Biosciences’ stock jumped from the $11 range in December up to $122 in March. Company shares closed at $50.50 on March 22.
“You could say this thing is falling apart, but going from $5 to $60 is an unbelievable jump,” Leedom said about Aurora’s stock.
Amylin Pharmaceuticals Inc., a company once plagued with problems over its experimental diabetes drug Symlin, saw its stock soar 1,568 percent last year.
Joseph C. Cook, chief executive and chairman of Amylin, is excited to have raised $100 million recently from a group of institutional investors.
“Those funds should provide us with enough coverage for the foreseeable future,” Cook said.
Red Hot Offerings
He declined to predict how long the money will last. He said, however, the money permits Amylin to file for governmental approval of Symlin this summer and fund research of another investigational drug.
Two other local biotechs, Diversa Corp. and Sequenom Inc., each raised more than $100 million in red-hot public offerings this year.
Nanogen Inc., which is working on a semiconductor microchip to identify and analyze samples of molecules, saw its stock rise 22.9 percent on March 1, closing at $96.50.
Epimmune Inc. shares doubled within three days. On Feb. 28 Epimmune stock closed at $8.125. On March 1, Epimmune’s stock jumped to $16.25 following an announcement it had found a compound with potential as a vaccine for hepatitis C.
Shares of Corvas International Inc. stock jumped 31.3 percent on March 1 to $16.50 , an all-time high for the San Diego-based biotech. On March 22, Corvas stock closed at $12.37.
Analysts agree biotech stocks have been significantly undervalued for years.
Middleton said the new public Internet companies were valued at $1 billion to $2 billion while the early-stage biotechnology firms sold for merely $100 million to $200 million.
Leedom said the recent shift will restore balance to a market that has lost all senses.
He felt that some biotech stocks were “tremendously overvalued” in recent months. But the wild ride is over, experts say.
On March 21, the Nasdaq Biotech Index fell 125, or 10 percent, to 1,092 according to TheStreet.com, a Web site providing information for investors.
Leedom and Amylin’s Cook, predict investors will seek out biotech firms with promising drugs in late-stage development.
“In the future people will be more selective,” Cook said.