With the Internet stock juggernaut running out of steam, investors on the prowl for The Next Hot Trend are now talking biotech.

If you believe in the axiom that what goes around comes around, there's a certain logic in Internet investors' discovery of biotech stocks.

After all, biotech was the Internet of the '80s.

Like the Net, it was a new technology that few investors fully understood. It was an industry in which entrepreneurs didn't have to create a product before they took their company public; they went public so they could create a product.

It was an era in which you didn't have to know how to make money before you sold stock to the public; selling stock to the public was the way you made money.

It was an investment that the biotech entrepreneurs and their financial backers knew was a long-term, high-risk venture capital gamble, but that many investors perceived as a short-term sure thing.

As the chart shows, investing in Maryland's multitude of biotech companies has produced more losers than winners -- even with the recent rebound in biotech stocks. Last month, the Amex Biotech Index finally matched the record level it reached in 1992 -- the last time the industry was this hot.

Biotech is booming, however, only for investors who picked the prize specimens from the two dozen possibilities in the lottery of initial public offerings of local biotechs. As of August, the Amex index was up 87 percent in the past 12 months. But the index is a cherry-picked selection of 15 stocks, a Best of Biotech list, not a proxy for the industry and certainly not representative of biotech stocks in the mid-Atlantic region.

Only three of the Maryland biotech stocks have beaten the Amex index this year. Over the past three years, returns on most regional biotech stocks have fallen short of the gains in the Dow Jones industrial average and the Standard & Poor's 500-stock index. The exceptions are the region's biotech superstar, MedImmune Inc., the peculiar payoff on the penny stock of Diagnon Corp., and a couple of others.

Identifying those stars at the time they went public would have required not only amazing skill but perseverance and patience.

MedImmune stock exploded shortly after the company went public during the early biotech boom in 1991, when "monoclonal antibodies" was as much a buzzword as "e-commerce" is today. But MedImmune shares cooled off when investors realized how long it would take to perfect, test and win government approval for monoclonal treatments for diseases. The stock went nowhere for six years, but began gaining in 1997 as products neared the market.

In the past year, stock of the Gaithersburg company has doubled because of the introduction of a drug trade-named Synagis, which prevents often-fatal respiratory infections in premature babies. MedImmune sold more than $200 million worth of Synagis during the drug's first winter on the market. With the cold, flu and pneumonia season about to resume, analysts are projecting a 50 percent increase in sales of Synagis and a market that ultimately will grow to $1 billion a year.

Because of the big payoff on MedImmune, Maryland biotech stocks have produced pretty much the pattern of returns that's expected on venture capital investments: lots of losses -- many nearly total -- a handful of respectable gains and one blockbuster hit.

That is no surprise to the financiers who helped take so many biotech companies public a decade ago, including Al Berkeley, who was a Baltimore investment banker at the time and now is president of Nasdaq.

To a large extent, the biotech industry is the legacy of Nasdaq -- just as today's Net stocks probably could not exist if there were not a ready market for shares of companies that fall short of the stringent listing standards of the New York Stock Exchange. Biotech financing also is a phenomenon that could only have been produced by the U.S. capital markets, with their diverse and democratized sources of funds.

A decade ago, the big players in the National Association of Securities Dealers made a commitment to raise what they called "public venture capital" for the beckoning biotech industry. Creating the biotech industry required more money than the venture capital community could have raised at the time. Biotech pioneers understood it would take years to turn laboratory research into an industry -- longer than most private investors will wait to earn a profit.

That time frame is obvious today, now that successful biotech companies that went public in the late '80s and early '90s are bringing their first products to market and beginning to produce profits. It was not so obvious during the early days of biotech, nor is it obvious today how long it will take Internet companies to produce billion-dollar businesses that yield big profits.

One big difference between Internet and biotech is the Future Shock phenomenon popularized by Alvin Toeffler, or as it's called today, "Internet time." Things are changing faster and faster. The Net is developing at warp speed; comparatively, some biotech innovations move at the pace of evolution.

Biotech entrepreneurs often knew what they wanted to do in their laboratories but not how to do it. Scientific and technological breakthroughs were required to reach their goals, but there was never much doubt that accomplishing their aims would produce profits.

Netrepreneurs, on the other hand, have the technology in hand but don't know how to use it to make money. The promise that "if you build it, they will come" is much different for MedImmune inventing a lifesaving drug and inventing online retailing. People are willing to pay any price to keep their babies alive. They may not be willing to pay full price plus shipping to order a book over the Internet.

Competition in biotech also is far different than for Internet companies. Most biotech entrepreneurs staked out a particular technological niche or product target early on; nobody else was racing MedImmune to make a monoclonal antibody treatment for respiratory syncytial virus.

The Net, in contrast, is overpopulated with public companies whose business plans read like they came out of the same word processor. Just use the search and replace function and Amazon's online bookstore model can be used to "e-tail" records, furniture, kitchenware or clothing. Or so some people think.

How many electronic employment agencies, online computer stores or Internet medical information services does the world need?

There is no better illustration of the possibility that you can build it but nobody will show up than the satellite telephone business. Iridium LLC won the race for space phones, and less than a year after the first call it filed for reorganization in bankruptcy. Competitor ICO Global Communications didn't bother to wait to go into operation before going into bankruptcy, filing last Thursday. Globalstar Telecommunications is still insisting that the third time will be the charm.

It's quite possible that the same thing could happen in the online grocery business, where several companies are investing hundreds of millions to build systems that will let people order groceries through the Internet.

Questionable business models, intense competition, the "Internet time" pressure and the fundamental problem of figuring out how to turn a profit on the Net add up to an industry that is an even riskier investment than biotechnology.

Combine those layers of additional risk with the unassailable similarities between the Internet today and biotech a decade ago, then take a look at the chart of biotech stock performance. There's a lone 1,400 percent payoff, a couple of decent investments, a batch of companies that still could come through for investors, and half a dozen stocks that have fallen below a buck a share.

If biotech was the Internet of the '80s, then those biotech burnouts will be replaced by Net stocks in the new millennium.

Life and Death

Some of these Maryland biotechnology stocks have seen dizzying returns in recent years, but only after languishing for as long as a decade.

Friday YTD 3-year

Company close return return*

MedImmune (MEDI) $114.50 130% 1374%


Diagnon (BIQL) 2.50 90% 950%


Digene (DIGE) 12.75 129% 149%


Human Genome Sciences 77 116% 99%

(HGSI) Rockville

Life Technologies (LTEK) 38.00 -- 2% 73%


EntreMed (ENMD) 21.12 1/2 31% 37%


IGEN International (IGEN) 24.35 1/16 -- 20% 24%


Chesapeake Bio. Labs 2.50 -- 42% 5%

(CBLI) Rockville

Celera Genomics (CRA) 33.43 34% NA*


Celsion (CELN) 0.98 326% -- 7%


Novavax (NOX) 4 106% -- 10%


Martek Biosciences (MATK) 8.68 3/4 9% -- 12%


Guilford Pharmaceuticals 14 -- 2% -- 27%

(GLFD) Baltimore

Gene Logic (GLGC) 4.43 3/4 -- 36% -- 44%**


Igene Biotechnology (IGNE) 0.09 60% -- 50%


Cel-Sci (HIV) Alexandria 2.75 57% -- 61%

Bioreliance (BREL) Rockville 8 N.C. -- 62%

PharmaKinetics Labs (PKLB) 1.00 -- 36% -- 65%


North American Vaccine 7.25 -- 18% -- 67%

(NAV) Columbia

Antex Biologics (ANTX) 0.34 -- 7% -- 72%


Cryomedical Sci. (CMSI) 0.27 250% -- 85%


Oncor (ONCR) 0.03 -- 23% -- 99%


* Spun off from Perkin-Elmer in April

** Aug. 30, 1996 to Aug. 30, 1999

SOURCE: Bloomberg News