NEW YORK (CBS.MW) – Led by shares of CV Therapeutics, biotechnology stocks fell sharply for a second straight day Friday.
The Amex Biotechnology Index plunged 8.5 percent and the Nasdaq Biotechnology Index tumbled 8.4 percent.
Biotechnology stocks surged along with other stocks Wednesday after the Federal Reserve reduced interest rates. But those gains proved fleeting. After the initial excitement about the Fed’s move wore off, biotechnology investors apparently concluded that the rate cut won’t make a huge difference for the sector. Biotechnology companies are involved with the development of new disease treatments, not a field typically considered sensitive to interest rate changes.
SG Cowen analyst Bill Tanner said biotechnology shares have been suffering recently partly because investors have gone back to emphasizing stock price-to-earnings ratios, a traditional method of valuing stocks. Judged by price-to-earnings ratios, biotech stocks are bound to suffer. Many biotechs are operating in the red as they spend heavily on research to develop new drugs.
On a bad day for biotech stocks, CV Therapeutics suffered one of the steepest declines. Shares plummeted $21.25, or 34.9 percent, to $39.63.
Palo Alto, Calif.-based CV Therapeutics said early Friday it plans to enroll additional patients in clinical testing of its experimental treatment for angina, a heart condition. Adding patients is expected to delay the company’s effort to win U.S. Food and Drug Administration clearance to sell the angina drug, called Ranolazine.
In a note to clients Friday, Merrill Lynch analyst Eric Hecht said he now expects CV Therapeutics won’t reach profitability until between 2004 and 2005, compared with his earlier expectation of 2003.
Still, Hecht raised his intermediate term rating on CV Therapeutics’ stock from “accumulate” to “buy.” The analyst said that the company has a number of strengths, including two drugs in late-stage development.
“In our view, the stock weakness is an overreaction to what is occurring with the product,” Hecht wrote.
Among the many other decliners Friday were shares of Idec Pharmaceuticals, which fell $10.94 to $155.06, and Protein Design Labs, which dropped $14.50 to $59.50. Stocks of both companies had fallen Thursday as well.