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    Biotech bubble too good to be true
    Geoffrey Newman
    September 17, 2003

    IT could be time to cash in on the run in biotechnology stocks, according to broker Tolhurst Noall, which yesterday warned investors the sector was in danger of collapse, driven more by sentiment than fundamentals.

    A Tolhurst report warned investors that the large price rises in many biotech stocks could evaporate as quickly as they had appeared.

    "Most of the sector is driven by sentiment first and fundamentals second," said Tolhurst broker Marcus Padley.

    "Make no mistake, when the market goes down, this sector is going to get caned. It is full of traders and profits."

    The biotech sector has risen by about 25 per cent since May as a general recovery in the stock market encouraged investors to take on more risk in exchange for potentially higher returns if these technologies - many still yet to progress beyond the lab - proved a success. It has also been a magnet for day traders attempting to profit from volatile price movements.

    Some stocks, like pharmaceutical company Chemeq, have doubled or tripled in price in recent months.

    But some of the fundamentals that have underpinned the stock market's recovery are under question. The bourse has fallen from its 13-month highs of last week as investors questioned the strength of the US economic recovery following a string of disappointing data.

    Tolhurst has picked just 15 stocks out of about 70 whose technologies are worthy of interest - only three of which are recommended as a "buy".

    "It is time to take a good look at the sector and decide whether you have an 'investment' on your hands or just a stock that has been in the right place for the last three months that you should take a profit on," Mr Padley said.

    The chosen stocks are anti-fat drug maker Metabolic, Chemeq, Agenix, anti-cancer researcher Peplin Biotech, Benitec, Epitan, Meditech Research, Scigen, Prima Biomed, Psiron, Circadian Technologies, Axon Instruments and Medical Monitors, e-health business Pro Medicus and Vital Capital.

    "These stocks tend to run a bit ahead of themselves," said ABN Amro biotech analyst Scott Power. "But there are a number of companies which do offer some reasonable upside." He nominated Agenix, heart-pump developer Ventracor, Metabolic, Peplin Biotech and Medica Holdings as the picks of the sector.

    The Australian
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