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FEATURE: Genomics Sector Shows Renewed Vigor, but Will it Last?

NEW YORK, May 23 – Genomics stocks, many of which hit new lows at the end of March or beginning of April, appear to be gaining momentum, pulled higher by the market's overall rise and renewed investor confidence following the Internet crash, analysts said Wednesday.

“Total stock is up,” said Winton Gibbons, a analyst at William Blair of Chicago. But he noted that people are also separating genome stocks out from the negative association with Internet stocks.

“People needed to get it into their heads that there is a fundamental difference [between genomics and] some Internet thing. People realized there’s a longer story here. There’s plenty of money to be spent on high margin drugs going forward,” he said.

The Nasdaq Biotechnology Index Fund closed at $103.9 per share on Tuesday, up from an early April low of $67.6 and just above February 2000 levels. Stock prices of companies such as Applied Biosytems, Incyte, and Gene Logic, which all stumbled to 52-week lows in early 2001, have recently been on the rise.

Other indicators, too, point to a possible reversal in the downward trend. Total market capitalization for 75 publicly traded genomics companies tracked by William Blair's equity research department is on the upswing. As of May 21, the aggregate market cap totaled approximately $80 billion, down 17 percent from $96 billion in February 2000, but up 60 percent since a March low of $50 billion.

While the genomics companies’ stock performance is following the trend of the Dow, the Nasdaq, and the S&P 500, analysts believe there is more to the genomics sector upswing than a hitched ride with the overall market.

Gibbons believes the genomic sector is still undervalued when compared with long-term prospects, and that the rebound since March will continue as investors sort through likely winners.

More savvy investors may have also started differentiating genomics companies from biotech in general, believes Frost & Sullivan analyst Justin Saeks. “The media is giving more attention to life sciences and biotech,” said Saeks. “People didn’t distinguish between companies doing drug discovery and those developing drug platforms or doing both. Recently, people are noticing there are different types of companies and there will be growth in pharma and academic institutions buying tools.”

The combination of relatively low genomic stock prices compared to last year’s highs and greater awareness of the sector has also attracted a different kind of investor, said Sven Borho of OrbiMed Advisors. They’re not “momentum [investors], but value guys,” said Borho, who further distinguished the current buyers as people looking "at rock bottom valuations” as an opportunity.

Merck's recent acquisition of Rosetta Inpharmatics may have also helped to stir up investor interest in the sector.

"Everyone woke up when Merck bought Rosetta," said Mike King, an analyst at Robertson Stephens. "Everyone sat up and said maybe we threw the baby out with the bathwater."

While there is some evidence that genomics companies are receiving renewed interest from potential acquirers and investors alike, market watchers fell short of saying that the frenzy for genomics stocks had been reignited.

“Over the next six months there will be realignment. Better companies will get attention from investors, less good companies” will fall by the wayside, said Stelio Papadopoulos of SG Cowen, adding that the upswing may have its limits.

“Today we are where we were in February,” he said. “We’re collecting from the sharp decline in March. I’m not convinced it will continue.”

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