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— As usual, biotech stocks -- including San Diego's -- had a frigid summer. But there are signs that fall may come early this year. San Diego's biotechs are showing some strength. If the overall market finally does what it's supposed to do in an election year -- rise -- then some biotech stocks could be winners.

Just keep in mind that biotechs are speculations, not investments. The few solid, money-making biotechs are almost always generously priced. So are the money-losing ones, the vast majority of the breed. So, bad news can send them down in a hurry, often pulling their cousins down, too. Biotechs traditionally ride a roller coaster.

Of San Diego biotechs rated for volatility by Standard & Poor's, more than three-fourths are in the "high" volatility category. And one in the "average" category, Invitrogen Corp., which provides products and services to companies in genetic engineering, plunged 22 percent on July 21. Such a one-day pratfall smacks of volatility to me.

How cold was the summer? Biotech Holders Trust, a portfolio of high-quality biotechs and a good proxy for the better ones, almost hit 160 in May, then plummeted below 130 this month, before bouncing back over 130 recently.

Eric J. Ende, biotech analyst for Wall Street's Merrill Lynch, believes that blue-chip biotechs that actually ring up profits could rise in coming months, particularly if the economy continues to weaken. Normally, when the economy softens, investors jump on the largest pharmaceutical stocks, figuring that healthcare won't suffer, no matter what the economy does. This time, however, big pharmaceuticals face many high-profile threats, such as importation of cheaper drugs from Canada. So the few solid biotechs could profit. On the other hand, Ende believes many lower-tier biotechs are overpriced "and likely to remain under pressure."

San Diego biotechs "are showing relative strength now," says Bud Leedom of Comstock Advisors, but past disappointments "make many investors jaded."

Much depends on how the overall stock market does. It's been down for the year, although it has made a bit of a comeback recently. Stocks almost always rise in an election year, because the incumbent can pull rabbits out of hats: a politically sensitive Federal Reserve might swamp the economy with liquidity -- a variation on the old ploy of getting voters soused on election day. This year, the central bank has indicated it will continue raising interest rates, but it could abruptly stop doing so before the election -- boosting the stock market. Or, President Bush could get his Saudi friends to ramp up production and bring oil prices down. That would boost the economy and stock market, but some scholars, pointing to a dearth of energy capital investment in the past two decades, doubt that the Saudis could pull it off.

Unfortunately, San Diego doesn't have many solid biotechs. One of our two most successful biotechs, Idec, is now part of Biogen Idec, based in Cambridge, Massachusetts. Merrill Lynch's Ende recommends that people buy that stock, partly because of Idec's Zevalin (a treatment for non-Hodgkin's lymphoma that should enjoy $1.55 billion in sales this year) and other Idec drugs in the testing phase for allergies, asthma, rheumatoid arthritis, auto-immune diseases, and cancer. Biogen Idec disappointed analysts last week, however, when it decided to keep clinical data on a hopeful new multiple sclerosis drug secret until the Food and Drug Administration makes its decision in November. Standard & Poor's considers Biogen Idec a better investment idea than 92 percent of the stocks it rates.

San Diego has a few profitable companies that are classified as biotechs, but they either make diagnostic tests or provide services or research equipment to other biotechs. Now that Idec is part of Biogen Idec and Agouron is part of Pfizer, San Diego has no highly successful, stand-alone actual drug maker.

One profitable test maker is Biosite, whose tests help physicians diagnose such things as drug abuse. It earned $1.50 a share last year, but if it would have reported the costs of issuing stock options as an expense, its earnings would have been cut by two-thirds. Its profits of the previous two years would have been losses under accounting rules that are likely to take effect before too long, although some in Congress are trying to thwart the reforms. Biosite's sales are rising sharply, and Karen J. Sack of Standard & Poor's puts the stock in the top 30 percent of rated issues.

Quidel, which makes rapid tests for such things as pregnancy and strep throat, enjoyed profits for three years through last year, but lost money in this year's first half on sharply lower sales. The stock sells below $4.

Equipment maker and service provider Invitrogen is also making money, although last year's earnings would have been halved under sensible accounting rules. Mark S. Basham of Standard & Poor's sees sales rising 32 percent this year and puts the stock in the highest 16 percent.

SeraCare Life Sciences, which provides biological materials to biotechs, is reporting good profits on solid sales gains. Its stock sells below $12.

After five years of big losses, Discovery Partners International made a modest profit (four cents a share) last year. This company, which provides products and services to other biotechs, suffers from sharply dwindling cash and rising current liabilities. Its stock trades between $4 and $5.

Then come the money losers, a bushel of them -- and I'm omitting the flimsiest ones. Ligand Pharmaceuticals, attempting to develop cancer drugs, has lost money every year for a decade. Early this month, it plunged almost 40 percent in one day upon reporting more bad quarterly earnings and the resignation of its auditor. "The nearest to profitability would be Ligand, but it has continually overshot the runway in predicting profitability," says Leedom. Nanogen, a money-losing maker of diagnostic products, saw its stock crater more than 20 percent in after-hours trading early this month when it announced disappointing profits. Hollis-Eden Pharmaceuticals, working on products for immune-system disorders, has been recording losses for seven years.

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