"Risk” is not a naughty four-letter word. At least, that’s what our central bank, the Federal Reserve, keeps telling us. The Fed is openly stating that it is flooding the nation with liquidity so people will take more risks — that is, buy stocks.
In all this fluid floating about, the big money has gone gaga for tech stocks, which can be the gamiest of all. Some investors hit it big, others strike out. Sexy techs like LinkedIn and Skype may offer their shares to a panting public. In a deal looking increasingly malodorous, Wall Street’s Goldman Sachs led a $2 billion investment in Facebook. That suggests the privately held company is worth an amazing $50 billion; it will be hard to resist going public in the future.
However, a look at the history of San Diego tech and biotech stocks should make people hesitant to follow the Fed blindly. Because the federal government and Federal Reserve are both putting guns to our heads and demanding that we buy stocks, I am doing so, but cautiously. And I am not buying these hot techs. They’re for gamblers, not investors, in my hidebound judgment.
First, try to recall (if you can stand to do so) the dot-com bubble of the late 1990s that burst so ignominiously in the year 2000. San Diego’s MP3.com went public July 21, 1999, at $28. The first trade was at $92, and the stock zoomed on to $105 on that opening day, before coming to rest at $63. At the time, it was the largest tech initial public offering ever. In May of 2001, the company was sold for $5 a share.
Wireless Facilities went public November 5, 1999, at $15. The first trade was at $37, and the stock closed the first day at $62. Soon, the stock was down 80 percent. Three years ago, it dropped the wireless business and changed its name to Kratos, greatly concentrating on defense. On Friday Kratos closed at $13.70.
Another darling was Diversa, developer of enzymes, which went public February 14, 2000, at $24 and jumped the same day to $75. After suffering problems, the company wound up part of Massachusetts biotech Verenium, whose stock closed Friday at $3.12.
Websense, whose software allows companies to learn if their employees are looking at porn or playing fantasy football during the workday, went public March 28, 2000. It zoomed from $18 to almost $48 the first day. But its growth has slowed down as competition has intensified. Standard & Poor’s suggests selling the stock. It closed Friday at $19.98.
SureBeam, which made systems to irradiate foods, was spun out of the then–Titan Corporation in 2001. Suddenly came 9/11. It appeared that SureBeam’s system would zap anthrax. SureBeam stock quickly doubled to almost $17. Titan’s almost doubled to $29 as hyperbole rolled from the companies’ publicity machines. Then the technology sputtered. So did the companies’ stocks. SureBeam went into Chapter 7 liquidation bankruptcy early in 2004. Titan got in trouble for illegally greasing the palm of a Benin politician. Titan was sold in 2005.
Biotech Sequenom has been on a roller coaster too. On September 24, 2008, the stock zoomed 35 percent to a six-year high when the company reported positive results for a test for Down syndrome. A year later, Sequenom said that it could no longer rely on the positive data. The stock plunged 40 percent and at that point was down 80 percent for the year. Later, Elizabeth Dragon, the former senior vice president of research and development, admitted that she had lied when she said that the Down test was 100 percent accurate. But now, MotleyFool.com says Sequenom may be the perfect stock: revenue is rising sharply. A major reason: the possibility that the Down syndrome test will be successful.
Another biotech that has given investors butterflies but is doing well now is Illumina, which develops genetic research tools. It went public July 28, 2000, at $16 and closed that day at $39. A year later, the stock was down more than 70 percent and two years later hit $1. Now it’s back to $69.05. Standard & Poor’s notes that an investor who put $10,000 in the stock five years ago now has $89,844. The company just signed a $335 million lease for a large campus in University City.
Then there is Carlsbad’s Genoptix, which provides diagnostic services to hematologists and oncologists. It is headed by Tina Nova. On March 1, 2007, the Reader reported how she had a quickie wedding in Las Vegas but upon discovering that she was still technically married to her fourth husband, and thus was a bigamist, had the marriage annulled. In 2007, the company went public at $17 and for a while was San Diego’s hottest stock, shooting to $39. Friday it was back to $20.32, and a Pennsylvania law firm is suing, claiming that management made exaggerated claims about the company’s future success while concealing negative facts.
Bank of America/Merrill Lynch analyst Robert Willoughby is not happy that top Genoptix managers gave themselves fat bonuses last year after the stock dropped 43 percent from the beginning of the year until December 16, when the allocations were determined. “We see little evidence that the company’s board is remotely engaged in any organic effort designed to create shareholder value,” says Willoughby. Media have reported that Genoptix has retained investment bankers to assess strategic alternatives; that often means a company is trying to sell itself.
Biotech Neurocrine Biosciences, which is developing medications for neurological disorders, went public May 23, 1996, at $10.50. By early 2006 it was above $65. Then it went south and Friday closed at $7.55. Standard & Poor’s thinks the stock is worth $10. But someone who invested $10,000 in Neurocrine five years ago only has $1218.
Investors in Ardea Biosciences, which is working on drugs for gout and cancer, have had quite a ride. The stock went public in 2000 at $320.24, adjusted for a reverse split. It dropped below $2 in 2003 but by Friday had climbed back to $27.85.