Washington – Investors in the nation’s biotechnology sector are riding a roller coaster this summer, seeing indexes that track these companies reach their highest levels in years – then retreat amid doubts about whether the rally can be sustained.
The bumpy ride is a reminder that biotech investing is not for the timid. The industry is a source of continual fascination for investors who believe modern science can deliver cures, and make a lot of money in the process.
But it also can be hazardous to people’s financial health, so much so that many analysts warn small investors to approach the sector with caution, if at all.
Biotechnology companies consume investors’ cash voraciously to develop new products. The industry never has been profitable overall – U.S. companies lost $6.4 billion in 2004, according to a report by Ernst & Young, a consultancy.
But the investment is slowly paying off: The industry has delivered a slew of new products in recent years, and its revenue is growing rapidly, hitting $46 billion in the United States in 2004, up 17 percent in one year. The industry could reach profitability as early as 2008, Ernst & Young predicts.
The world’s biggest and most visible biotech companies, Amgen Inc. and Genentech Inc., both of California, are profitable. (Amgen operates two plants in Colorado, in Boulder and Longmont, with 800 employees.) And they have turned in sterling performances this year, particularly on sales of drugs used in cancer treatment.
“The earnings tell you this isn’t just an industry that’s built on promise any more,” said John T. McCamant, editor of the Medical Technology Stock Letter in Berkeley, Calif. “The companies are showing: We can deliver the numbers.”
The Amgen and Genentech performances exceeded Wall Street’s expectations and helped fuel a midsummer rally in the shares of smaller companies, analysts said.
“You have had some very good performance by the two marquee names in the sector,” said Alexander A. Hittle, a stock analyst at A.G. Edwards & Sons Inc. of St. Louis. His company earns fees from biotech companies for investment-banking work. “When investors see the success of the bellwethers, they imagine that all their smaller hopes-and-dreams stocks will one day rise to similar greatness.”
Genentech, based in South San Francisco, Calif., was the first biotech company, founded in 1976. California is still the leading biotech state, with Massachusetts at No. 2. Maryland runs neck-and-neck with North Carolina for the No. 3 position.
Colorado is ranked No. 12 under a variety of criteria, including number of employees in the sector and amount of money invested, according to Denise Brown, executive director of the Colorado Bioscience Association.
