Genome Statement Hits Stocks
NEW YORK -- A sharp selloff in the stocks of biotechnology companies that hope to profit by creating drugs based on genetic data followed statements by U.S. President Bill Clinton and British Prime Minister Tony Blair on Tuesday that the sequence of the human genome should be made freely available to all researchers.
The White House quickly said it did not intend to hurt the fledgling biotechnology industry, but investors who have made biotechnology stocks the darlings of the market were unconvinced. In frantic selling, they wiped away tens of billions of dollars in market value from the industry. Genomics companies, which are racing to produce a database of human DNA, were hit hardest, with some off more than 20 percent.
The drop was not confined to the biotechnology sector. After briefly passing 5000 in morning trading, the Nasdaq composite index, which is heavily weighted in technology stocks, fell steadily. The index closed at 4706.63, down 200.61 points, its second-largest point loss ever.
For investors, the drop is noteworthy, because biotechnology and Internet companies have led the stock market so far this year, while most other stocks have languished.
The joint statement from Clinton and Blair, which said the genome data "should be made freely available to scientists everywhere," served as a spark for excitable investors.
Roy Whitfield, chief executive of Incyte Pharmaceuticals, which shed 28 percent of its market value during the day, said investors failed to distinguish between genome sequences and gene sequences. The genome, referring to the total human DNA, has no commercial value in itself and cannot be patented. The genes, which occupy only 3 percent of the genome, can be. Researchers can work on the sequences of patented genes in academic work and have to pay license fees only if they wish to sell some invention based on the sequence.
The two leaders' statement, which was eight months in the making, is a bureaucratic outgrowth of the long-standing rivalry between a public consortium of U.S. and British academic centers and Celera Corp. of Rockville, Maryland, to complete the sequence of the human genome.
The consortium, largely funded by the U.S. National Institutes of Health and the Wellcome Trust of London, is posting its findings daily on a web site open to all. Celera promises to make its version of the human genome freely available when it is finished, probably this summer. Celera plans to patent some genes, but its principal business plan is to operate a database of the human and other genomes, charging fees for use of the programs that search and analyze the genetic data.
The statement was intended simply to codify the government position in the rivalry - that the human genome sequence should be made publicly available to all researchers - but appears to have been interpreted as a challenge both to Celera's intellectual property rights and to those of other genome and biotech companies.
The statement cuts across a complicated two-way rivalry between the public consortium and Celera, and between Celera and its two chief rivals, Incyte Pharmaceuticals and Human Genomes Sciences.
Both the consortium and Celera aim to sequence the human genome, which means determining the order of the 3 billion chemical units in the DNA, the genetic information possessed by each human cell.
The strategy of Incyte and Human Genome Sciences is to focus on the genes themselves, patenting as many as possible.
By traditional valuation standards, the Nasdaq is extraordinarily expensive, leaving some analysts worried that it is overdue for a sharp drop. The average Nasdaq stock trades at well over 100 times expected 2000 earnings, and some large Internet and computer stocks trade at unheard-of price-earnings multiples of 500 or more.
A drop in the biotech and computer high-fliers could shake the broader stock market, which has already been rattled by the Federal Reserve's recent increases in short-term interest rates, analysts said.
Tuesday, broader indexes followed the Nasdaq down. After spending most of the day up, the S&P slipped 24.47 points to 1359.15, a 1.8 percent drop. The Dow industrials fell 135.89 points, or 1.4 percent, to 9811.24 and the Russell 2000 index of small-capitalization stocks fell 17.15 points.
To be sure, analysts who have dared to be bearish have been wrong for the last five years. Byron Wien, chief U.S. investment strategist for Morgan Stanley Dean Witter, noted that the Nasdaq is very volatile and that investors might shrug off this decline as simply a buying opportunity.
"We've had bad days in the Nasdaq before, and they've snapped right back," Wien said. "What we have to see is whether the 'buy the dips' mentality is broken."