Volatility batters Genesis

By DANIEL RIORDAN

Investors in Genesis Research & Development are finding out just how volatile the world of biotechnology stocks can be.

Almost six months after listing at $6, and soaring as high as $8.48, Genesis shares yesterday dipped below $4 for the first time, closing 10c lower at $3.95.

The slump began a month ago when Genesis released trial results for its psoriasis drug PVAC.

Although the company heralded the results as positive, some US analysts who cover the company's US partners in the research were less enthused, noting that competitors who had similar products in the pipeline had done better.

The reaction of SG Cowen analyst Bill Tanner was typical. He said the results "weren't very encouraging."

These negative reactions were picked up by the market here and sent the stock sliding.

This week's jolt to the high-tech Nasdaq market, where most of Genesis' overseas counterparts are listed, did the company no favours. However, its institutional investors are standing by the company, and say the market has overreacted after having too high expectations for the trial results.

Simon Botherway, head of equities at Arcus Investment Management, which owns just over 5 per cent of the company, said other drugs which had also disappointed with their phase two US Food and Drug Administration trials had eventually been successfully commercialised, including Viagra.

Other successful biotech companies, including Genentech and Biogen, had also returned mediocre trial results at various times.

"The market is pricing Genesis as if its success depends on PVAC and it doesn't," said Mr Botherway. He cited the company's joint venture forestry company ArborGen and plant development project BioStore.

Andrew South, equity manager at BT Funds Management, which like most funds holds Genesis shares, said the biotechnology sector globally was under pressure and the lack of liquidity in Genesis shares had not helped its share price.

Amanda Smith, investment manager at 5.5 per cent owner Armstrong Jones, said the share price had been hammered on low volumes and the volatility was not surprising. She said there were many positives in the trial results.

Genesis chief executive Jim Watson said he was concerned at the share price fall, but maintained that the trial results, which were basically sound, were not the issue.

More pertinent, said Dr Watson, were the fall of Nasdaq, the market's overly high expectations for the trial results, and a perception from local investors that the trial information released to the market in New Zealand differed from that released in the United States - a perception that was unfounded.

"We, like our partners, still feel the trial results were positive and we gave the same message to both markets."

He said PVAC continued to have a long-term future, with further trials under way.

Genesis' slumping share price is at least unlikely to affect its immediate growth plans. In the company's annual report, released this month, it says its cash reserves of $61 million at balance date of December 31 will be enough to fund its research and development plans for the next four years.

The increased R&D will, however, result in the company's losing money this financial year. In the year to last December, Genesis reported a net profit of $700,000.