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Monthly Discussion

Biotechnology Stocks

Having discussed nanotechnology stocks in the Newsletter of August 16, 2004, I would like today to take a look at another promising sector of technology stocks, namely biotechonology.

Exhibits 3 to 9 show historical prices and forecasts for the stock prices of seven representative biotech companies: AMGEN, BIOGEN, GENENTECH, GENZYME, MILLENNIUM, CHIRON, and MYRIAD. The last two are a little more specialized and as such may be less representative of the sector. The forecasting approach is always the same, that is, treating the stocks as species growing in competition. Survival of the fittest implies that their share volume and dollar value should follow natural-growth curves (S-curves) the ratio of which yields a price forecast.

The historical window varies from one company to the other because I choose a time period that is amenable to S-curve descriptions. Large abrupt changes in the volumes introduce discontinuities in a long-history data set. The figure captions include comments for the stock in question.

Exhibit 3. One of the old-timers in the market, AMGEN enjoyed major growth in the late 1990s, suffered but recovered from the bursting of the tech bubble, and shows particular stability during most of 2004. A rise of about 5-6% is expected between now and the end of the year.

Exhibit 4. Another old-timer with a story similar to that of AMGEN, if a little less stable. Forecasted to decline 3% by year’s end.

Exhibit 5. Similar to the other two above, this company is expected to remain flat through year’s end.

Exhibit 6. This stock also suffered from the bursting of the tech bubble but enjoyed a significant comeback in the mid 2003 to surpass its pre-bubble performance! With a rather turbulent recent pass, the above-forecast is based on data only since August 16, 2004, and therefore is not very reliable. In any case, the forecast argues that the recent fall in the price will be turned around and the stock will finish the year with about 6% gains with respect to October 13.

Exhibit 7. This is a younger company whose price never really recovered from the bubble-bursting drop. With occasional extreme excursions in the share and dollar exchange volumes the stock has been enjoying relative stability in recent months. Its price is expected to gain another 3-4% between now and year’s end.

Exhibit 8. A volatile stock in terms of share-volume behavior, it may have recovered from the tech-bubble burst but it suffered a similar decline of its own recently. Trying to find some “reasonable” pattern I have kept data only since 1-Sep-2004, which makes the forecast rather unreliable, but if we believe it, the recent drop should level off toward year’s end.

Exhibit 9. Another stock that never recovered from the bursting of the tech bubble. With turbulent history that sees share volumes skyrocketing from time to time, the stock has settled into relative stability in 2004 and is forecasted to be flat in the months ahead.

CONCLUSIONS

In contrast to the nanotechnology stocks (in the Newsletter of August 16, 2004 they were all forecasted to either decline or remain flat) several biotechnology stocks are on the rise. In a market that is not expected to rise (see red line in Exhibit 1) the modest gains of the biotech sector become more significant. One may say that nanotechnology took more of a beating from the tech-bubble bursting than biotechnology.

It could be explained, after all biotechnology is a younger stock-market competitor and may have an age advantage. The sector has gotten a big boost—rebirth—from the glorified publicity of the sequencing of the human genome in the mid 1990s.