However, a recent flurry of negative announcements – Merck & Co. Inc.’s Vioxx debacle, Chiron Corp.’s flu vaccine snafu – haven’t helped matters one bit, and could cast a pall over the healthcare sector going forward.

The stocks could certainly use a pick-me-up, though: The AMEX Biotech Index added a mere 7% between December 31, 2003 and September 30, 2004, whereas the Comp actually shed 5% during the same time period. While the biotech stocks appear to be outperforming the overall market this year, the last two quarters have been essentially flat: Between March 31, 2004 and June 30, 2004, the AMEX Biotech Index shaved off 0.8%, and between June 30, 2004 and September 30, 2004, it gained 0.4%. The Comp gained 3% over the second quarter and subsequently dropped by 7% over the third quarter.

Footnotes to the table:

§ ST & LT Debt: Short-term and long-term debt.

§ Company valuation: Market cap + short-term and long-term debt, minus pro forma cash and cash equivalents.

§ Annualized burn rate: Net loss from the last available quarterly report, X4. Companies with net profit (instead of loss) are indicated as "na."

§ Survival index: Cash (plus cash equivalents) / Estimated burn rate.

§ Cash/cash from IPO/share: cash on cash return from IPO price = current stock price / IPO price per share (split-adjusted).

§ Price/share at IPO: IPO share price, adjusted for all subsequent splits.

§ Median: Middle value in a set of values.

§ The information contained in the September 2004 Stock Report has been obtained from public sources. Where information is not available, it is indicated as "na." Recombinant Capital cannot warrant the ultimate accuracy of the data. All data are subject to change.

§ Most of the accounting figures are from quarterly reports as of 3/04 or 6/04, with pro forma adjustments for more recent financings (including debt offerings), if any.



Highlights From The September 2004 Stock Report:

§ Since our last report in June 2004, we’ve added the 5 companies that completed IPOs in July and August. (For a list of these companies, please refer to the Signals article, “IPO Monitor.”)

§ As we’ve mentioned, the stocks as a whole lost a significant amount of ground during the third quarter. At the end of June 2004, they had gained an average of 29% in value since the preceding June. But now, the average stock is down 2% from its year-ago price.

§ Several groups have been especially hard-hit. By category, the losers are Gene Therapy (an average drop of 19%), Cancer (-18%), Chemistry (-12%), Cardiovascular (-10%), Delivery (-8%), Infection (-6%), and CNS (-3%).

§ Conversely, the best-performing categories are First Generation Genomics (an average 12-month gain of 31%), Revenue-Driven (+23%), Autoimmune (+21%), and Screening (+12%).

§ Not surprisingly, then, market caps have declined over the last three months. At the end of June 2004, the average market cap for the entire universe of companies was $1,286 million; by the end of September, it had dropped by 2%, to $1,257 million. Likewise, the median market cap fell from $247 million in June 2004 to $232 million in September, a drop of 6%.

§ Still, market caps are better than they were 12 months ago: At the end of September 2003, the average market cap was $1,098 million and the median was $220 million.

§ On average, the companies in our universe also have a little more cash than they did a year ago: At the end of September 2003, companies had an average of $139 million in cash reserves; the median cash was $46 million. At the end of September 2004, those reserves had increased, on average, to $162 million; the median was $69 million.

§ However, the cash reserves aren’t as high as they were at the end of the first quarter of 2004, when companies had an average of $173 million on hand and the median stood at $72 million. Still, the median survival index of 2 years at the end of September 2004 indicates that most companies will be able to weather any short-term downturn.


Satomi Degami, CFA, Recombinant Capital
Jennifer Van Brunt, Editor, Signals