Biotech stocks tread water in 2004

Despite a boom in IPO activity, retail and institutional investors left biotechnology stocks on the shelf in 2004, two sector indices have revealed. The Southern Cross Equities Australian Biotechnology Index declined 5 per cent in 2004, and the 80-company Intersuisse Biotechnology index - bolstered by some larger stocks including Cochlear (ASX:COH) and Resmed (ASX:RMD) -- edged forward only 0.16 per cent over the year.

In comparison, the All Ordinaries rose 23 per cent in 2004 and the Nasdaq biotechnology index was up 6 per cent.

It was a year of mixed fortunes for Australian biotechs, with analysts at both organisations tipping that the lack of appetite for biotechs was part of a more general trend away from small-cap stocks.

"With much of the speculative capital from both retail and institutional investors being diverted towards the resources and energy sector, the biotech sector failed to retain market attention," said Interuisse Corporate's Jonathan Buckley.

Stuart Roberts at Southern Cross Equities noted that his index - which includes 94 equally-weighted biotech companies -- reached a low point in June, rallied until late November, and then suffered a 9 per cent sell-off in December.

Part of this slump can be attributed to market disappointment in the Phase IIb results of Metabolic's (ASX:MBP) anti-obesity drug. "The company rose 17 per cent for the year but fell 28 per cent in December to end the year at $1.28," said Buckley.

But the greatest fall from grace was Chemeq (ASX:CMQ), which jumped 167 per cent in 2002 and 50 per cent in 2003, and dropped 77 per cent in 2004 after delays and cost-blow outs in production of its anti-microbial took their toll.

Star performers included Progen (ASX:PGL)- which obtained orphan drug status for its PI-88 liver cancer compound- up 179 per cent for the year; Medical Developments (ASX:MVP), up 141 per cent and Psivida (ASX:PSD), which gained 131 per cent.

"Now that Christmas is over the market looks like it is turning north again," said Roberts. But he warned that it could be a while before the sector sees another day in the sun. "Biotech is lagging behind the broader market and when it does that it tends to do that for a while."