Biotech Week in Review: Holding Steady

by: Centient Biotech Investor

For the third week in a row, biotech continued its Hamlet-like indecisiveness.

The net change for each of the last three weeks has been under one-half of one percent. Last week, the Centient Biotech 200™ dropped by less than a point to close at 4053. In terms of percentages, the net change was measured in the hundredths, at .02%. During the previous week, the CBT 200™ gained four points.

This is not the stuff of headlines. Nevertheless, as we said last week, biotech remains much closer to the highs than the lows. It is down just 1.4% from the all-time high, though it is now five weeks since that high was hit, the momentum dissipating as time passes. On the other hand, biotech is not being crushed: the sector is not experiencing a precipitous decline. In fact, the CBT 200™ remains 3.3% higher for the year and more than 15% above its 52-week lows.

One of the things that biotech must overcome is poor performance in its two biggest companies: Amgen (NASDAQ:AMGN) and Genentech (Private:DNA) both declined approximately another 1% each last week. In itself, that is not a lot, but it continues a trend that has been evident for the last five weeks. Because of their huge market caps (for biotech), these two giants have an outsize effect on the CBT 200™.

In terms of breadth, the numbers were split last week, much as might be expected for a week that did not produce much change. There were 96 biotech companies that moved higher, while 119 headed south, a ratio of 1.2 decliners for every gainer. The big winners to big losers comparison was more positive, as is often the case. There were 13 biotechs that gained more than 10% and 7 companies losing that much, a ratio of 1.9 big climbers for each big decliner. The average share of a biotech company (taking away the market capitalization factor) rose .58% last week. The discrepancy between that number and a flat index can be explained largely by the negative effect of Amgen and Genentech.

The IPO market will kick back into gear next week after a two-week hiatus. On the docket are both OncoGenex (NASDAQ:OGXI) and Rosetta Genomics (NASDAQ:ROSG). OncoGenex is a cancer company that is developing drugs to fight resistance to cancer therapy. The company has one product in five separate Phase II tests, though none of the tests has reported results so far. OncoGenex plans to place 4.5 million shares in a $10-$12 range. Rosetta Genomics, which tried without success to make its IPO in 2006, is back seeking buyers, having lowered its asking price to a $7.50-$8.50 range, but upped the number of shares being offered by 25% to 3.75 million. Rosetta is developing microRNA-based diagnostic and therapeutic products

The post-IPO trading is one of the bright spots in biotech, though the index of recent IPOs slipped slightly last week, which hasn’t happened very often this year. Also unusual was the fact that no individual issue produced a really spectacular advance. Omrix [OMRX.OB] is the best performing of all IPOs, irrespective of sector, with a 247% increase for its IPO investors over the past 12 months. But Acorda (NASDAQ:ACOR) remains number one on our list, up 303%, because it stays on the “recent” list for more than 12 months, until it has been out for a full four quarters. The biggest percentage gainer last week from the recent-IPO list was Optimer Pharma (NASDAQ:OPTR) with a 12% advance. It is now up 42% in the two weeks since it made its debut.

Among the Centient Biotech 200™, the largest gain was registered by Cortex Pharma (NYSE:COR) with a 62% increase. Cortex believes it can show that its Ampakine drug does not have any toxic effects. The FDA has placed a limitation on the dose size of Ampakine, a prospective treatment for ADHD, because of toxicology concerns. Rodman & Renshaw responded to the news by upgrading its opinion on the stock. Cortex gained just 71 cents to end at $1.86, giving it a market cap of $65 million.

Much like Cortex, most of the big gainers/big losers are small market-cap companies, and many of them do not display any ostensible reason for their increases or declines. That is true for each of the next three winners: Icagen (NASDAQ:ICGN) rose 39% for a market cap of $54 million; NeoPharm (NEOL) was 31% higher for a value of $65 million; and Corcept (NASDAQ:CORT) gained 25% for the smallest market valuation of all - just $28 million.

However, Bruker BioSciences (NASDAQ:BRKR) breaks the mold. It rose 19% to create a company worth $971 million. Moreover, the company was higher based on old-fashioned fundamentals: better than expected results. In its fourth quarter, Bruker managed to beat the street on both revenues and earnings, and it guided analysts higher for its 2007 numbers. Bruker, which makes mass spectrometry and X-ray systems, gained $1.50 to end the week at $9.50.

Disclosure: Centient management holds a position in Genentech shares and does consulting work for Genentech.