BioTech Stock Report - Summer Doldrums

BioTech Stock Report Summer Doldrums

August 11 2003. For most of this year the Biotechs have rallied. This is evident by the solid gains posted by the biotech indices (^BTK and ^NBI). However, last week, there were significant signs that a sell-off in the biotechnology sector is underway as both indices fell about 8%. This corresponds with the Dow index sitting less than 100 points below a new 52-week high and the Nasdaq 72 points, or about 4% down. Since reaching a new 52-week high less than one month ago, the technology-loaded Nasdaq index has fallen 8% while the S&P 500 remains flat.

For now, we anticipate a seasonal weakness for the biotechs. The weakness comes when there isn’t much news flow to keep Wall Street interested. However, come autumn, the tempo will pick-up as medical conferences resumes. We continue to think the fundamentals remain solid, as we had explained in our August 2003 report.

For instance, we have always liked and believed in Genentech’s ability and recommended buying the stock prior to the Avastin story. To make a long story short, Wall Street keeps raising the bar on Genentech and at its current share price, Genentech has become a bit rich. Undoubtedly, the market believes Avastin represents a billion-dollar market opportunity in colorectal cancer alone. And the prospect of the Avastin becoming a multi-billion dollar product with its use in other cancers, along with the approval of Xolair and the potential for additional positive pipeline news is providing the momentum for Genentech’s stock. It’s hard to go against the tide, although a major pullback in its share price would be a good play since the company will have solid growth built into its future.

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