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JUNE 11, 2004
By Amy Tsao The Bloom Is Off the ASCO Rose The annual cancer confab is over, and once again, so is investors' euphoria over possible breakthroughs This year, biotech investors thought it might be different. Based on promising early data about several drugs, many hoped that the sector would hang onto the gains that came in the lead-up to the annual meeting of the American Society of Clinical Oncology (ASCO). Most years, investors buy ahead of the meeting, then sell en masse when it's over. Indeed, ASCO 2004 (held June 5-8 in New Orleans) was an impressive showcase of new, targeted approaches to treating cancer. "The big story this year was mostly ImClone System's (IMCL ) Erbitux in head and neck cancer," says Leerink Swann analyst Bill Tanner. Data for another targeted drug -- OSIP Pharmaceutical's (OSIP ) lung-cancer drug Tarceva -- were also impressive. The strong data, however, already had been priced into the stocks before the meeting. Since the start of the year, ImClone is up an astounding 103%, while OSIP rose 113% over the same period. WILD RIDE. Now, the ASCO-related swell-then-swoon has happened again. In an uninterrupted climb since the start of 2004, the Amex Biotech Index reached a 52-week high of 567 in late April, but began to lose steam as the cancer meeting approached. On June 10, two days after the conference's conclusion, the index closed at 489, down 13.7% on the year's high. That's no comfort for investors who were clinging to the recent memory of 2003. At ASCO 2003, Genentech (DNA ) presented overwhelmingly positive results for its pioneering colorectal cancer drug Avastin. That data, along with a renewed appetite for riskier stocks in general, sent Genentech climbing, also lifting the broader biotech market. "Because we were coming off two years of a really down market, last year, after Avastin data came out, we didn't look back," says Ren Benjamin, an analyst at investment bank Rodman & Renshaw. Genentech has been on a rocket ride over the past 12 months, up some 170%. And the sector, too, remains up by about 20%. Investors hoping that the gains would continue ignored other factors driving the biotech sector. While it's true that the ASCO confab is a rallying point every year for biotech investing, the gains last year were also fueled by the broader market and economic conditions, says Peter Stern, senior managing director at New York City-based investment bank Jesup & Lamont. As the Street became more certain of an economic rebound and returns on investments tied to interest rates remained poor, the desire for bigger returns drew many to biotech. SUMMER VACATION. However, many suspect the enthusiasm that started last year is stalling, believing the time has come to be more selective. "In some ways, ASCO is a culmination [of the sector's gains]," says Geoff Porges, analyst at Bernstein Research. He is recommending investors buy a handful of stocks that he figures will be lifted by the catalyst of good news over the next 12 months. They include Biogen-Idec, Gilead (GILD ), Vertex (VRTX ), and Medimmune (MEDI ). Even with the good news about Avastin, biotech took a pause after the 2003 meeting. That's because the event marks the start of the sector's traditional summer break, when the flow of news is light. Benjamin says that the sector typically resumes climbing in the early fall as further, data-heavy meetings take place: ICAAC, an infectious-disease association meets in September, the American Heart Assn. in November, and the American Society of Hematology pow-wows in December. It looks like no matter how good the news from ASCO has been, the biotech sector will need something more to keep the rally going.  Tsao covers biotech and the markets for BusinessWeek Online in New York Edited by Patricia O'Connell
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