Biotech Stock Research
a resource for investors

By Kimberly Hilden
SCBJ Assistant Editor

Biotech Stock Research LLC has its eye on Bothell-based Seattle Genetics and Sonus Pharmaceuticals — as well as two dozen other development-stage biotechnology companies covered by the independent research firm.

Such companies, whose market capital is tied to a drug that has yet to gain regulatory approval, comprise a high-risk sector, one in which only 10 percent can expect to succeed, said David Miller, president and chief executive of the Seattle-based research firm.

“I tell people, ‘If I can get four (out of 10), I’m doing good; if I can get six out of 10, I’m a genius.’ In most endeavors, if your hit ratio is 40 to 60 percent, you need to go looking for another job,” said Miller, who co-founded the company in 2001 with director of research Alan Leong.

But Miller, with years of experience as a technical analyst and market commentator, said he finds development-stage biotechnology to be “a fascinating mix of science and business operational capabilities that, honestly, I think is unique anywhere in the stock market.”

BSR’s ability to take complex scientific concepts and explain them in plain English and its talent for analyzing operational issues have helped the company carve a niche for itself in the research industry, he said.

The company’s client base is made up of 60 percent individual investors and 40 percent professional investors, but those numbers are reversing every day, Miller said, as BSR becomes more well known in professional investment circles.

Among its offerings are Biotech Monthly, published near the end of each month and offering focused coverage to sector investors, as well as BSR Alerts for breaking news. In 2005, the company sent out more than 250 alerts; in 2006, nearly 300.

Now in development is BSR+Alpha, a product Miller hopes to debut by the end of 2007 to meet the growing needs of customers.

“The biotech sector has changed quite a bit since 2004 (concerning) the relative risk and reward when news is good and news is bad,” Miller said. Up until that point, if a biotech company released positive news, its stock would be up about 40 percent overnight; if it released negative news, it would be down about 40 percent.

Now, if a company has good news to report, its stock rises by 20 to 30 percent; if it has bad news, the stock falls 50 to 60 percent overnight, he said. “It makes it much more difficult to position yourself in this market. You have to be at once more defensive and more patient.”

Miller said this market environment arose due to the changing structure of the stock market itself, as biotech investors who previously had long-term strategies for their holdings began looking to short-term outcomes. Less importance was being given to fundamental analysis — which takes into account the biotech’s science, its management and its regulatory strategy — and increased importance was being given to tactical investing — investing on how one thinks a stock will react in a given situation.

“What we are attempting to do for the first time in our sector ... is combine fundamental analysis and tactical analysis,” Miller said of BSR+Alpha.

“Because it’s not been done before, we really don’t have a template,” he said. BSR+Alpha will be based upon the company’s own BSR Biotech Index, an equal-dollar weighted index made up of all development-stage biotech companies trading on the AMEX, NASDAQ and NYSE exchanges — about 250 companies all together.

For more information on the company, go online to www.biotechstockresearch.com.