Investing is all about promise, and no industry has delivered more of that over the past dozen years than biotechnology. That many of those promises have gone unfulfilled, however, deserves mention as we enter yet another period of wonder-drug euphoria on Wall Street. In the past, flamed-out cures for everything from cholera to cancer have burned those who dared put their money on a biotech dream. Just in case you forgot, or are too young to remember: there was a heart-fluttering, blood-clotting, joint-stiffening biotech bubble and bust in the early '90s, and Mr. Market has thoughtfully rewound the tape. The group's first decent rally in 10 years took shape last December. Biotechs bedazzled for three months, surging 175%--only to crumble over the past few weeks. A slew of "promising" companies are now worth half what they fetched in the market the first week of March. Some much less. Consider this biobomb: Protein Design Labs leaped from $97 on Feb. 4 to $327 on March 2 and back to $97 on March 7--completing an expensive round trip. That painful voyage is all too familiar in biotechland.
Still, Protein Design remains well up from where it traded in December, as does the group. Many expect biotech stocks to rally again in coming months as investors rotate out of overplayed Internet stocks and get past the foolish remarks from President Clinton and British Prime Minister Tony Blair, who recently urged researchers striving to map the sequence of the human genome to share their findings.
The reaction to the pair's joint remarks, widely misinterpreted as advocating a new, more restrictive position, was nonetheless useful in getting investors focused on the industry's progress since its bubble days. Then, biotechnologists assumed they could replace any defective gene and have a quick cure--an approach leading to that trail of failure. Today, they recognize that there's much more to it and are zeroing in on the most troublesome genes that can be replaced most easily. It's a whole new level of promise, one with more true believers. "This industry is real," says Larry Feinberg, chairman of the biotech-investment firm Oracle Partners.
An improving success rate is bolstering the case for biotech. "More than half of all new drugs approved today are coming out of the biotech sector," says Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley, Calif. Some 350 biotech products are in trials, and more than 100 are on the market. Among recent blockbusters: Herceptin, a breast-cancer treatment from Genentech, and Enbrel, an arthritis medication from Immunex. Yet a few standouts hardly guarantee the success of an entire industry. That's where gene mapping becomes critical.