Only a month ago, Human Genome Sciences Inc. stock was doing so badly that even analysts who believe in the Rockville company's long-term future were hesitant about recommending it to investors.

Once a $112 stock, HGS had been stuck for weeks in the $6 and change range. But thanks to two breakthroughs on new drugs, the stock now is close to $10, leading a rally by other local biotech stocks including Digene Corp., MedImmune Inc. and Martek Biosciences Corp.

Is biotech back?

No, not if you look at where biotech stocks were back in the Nasdaq bubble days, when they were almost as overinflated as Internet and telecommunications stocks.

But while most of the telecom highfliers have gone bankrupt and "Internet investing" remains an oxymoron, the biotechs keep on doing what they've been doing for better than a decade: searching for the needles in the haystack of proteins, chemicals and compounds that might have therapeutic value.

The local labs have been finding enough to renew investors' interest. The stocks have scored significant gains at a time when the market as a whole is being whipsawed by war speculation.

The biotech analysts at A.G. Edwards & Sons in St. Louis, which has earned fees from underwriting the initial public offerings of some small biotech companies, summed up the situation last week in their latest update.

They pointed out that news is generating big moves in biotech stocks, including a 19 percent rise in HGS stock in the three days after the announcement of its anthrax treatment. "We view the market's lively reaction to the announcements as a signal that perhaps a bottom has been reached among the currently nonprofitable biotech stocks."

Ready for Risks

Investors again are willing, indeed eager, to listen to the stories that biotech companies have to tell. One reason is that there aren't a lot of other industries with credible tales to offer these days. Another is that more biotech companies are inching toward profitability.

Profits didn't matter back in the bubble days. Since then, biotech investors have stopped betting on the future and put their money into industry leaders, like Amgen Inc. and Genentech Inc., that have already brought blockbuster drugs to market.

The A.G. Edwards analysts say the recent jumps in the shares of HGS and Vical Inc., a California company that also has a new anthrax drug, are evidence that investors are getting more adventurous.

"The market reaction," they noted, "argues to us that the moment is nearly upon us, if not already here.

"Investors who have the luxury of investing anywhere in the biotech sector should consider easing up on commitments to the large profitable names and rotating the funds into the beaten-up second tier of companies where the potential rewards are far greater," analysts said.

The phrases used in the Edwards reports -- "currently unprofitable" and "second tier" -- pretty well describe the local biotech industry. There are lots of little companies that have not excited anyone, but investors have shown a lot of interest in a select few. Still, these companies are not expected to return to the stratospheric prices they hit a few years ago: MedImmune, $84, Martek, $34, and Digene, $55.

MedImmune, valued at more than $8 billion, is profitable and could move into biotech's top tier when its fourth drug goes on the market later this year. The drugs generating profits now are niche products but by fall MedImmune will be selling FluMist, a nasal-spray influenza vaccine.

As FluMist cleared each step of the regulatory process, MedImmune stock ratcheted upward from a low of just less than $21 last fall to $33.57 at Friday's close.

With a market value of about $1.25 billion, Human Genome Sciences isn't a struggling start-up, but until last month, the company's appeal has mostly been its genetic research system, not its products.

That system, which speeds the process of sorting through vast numbers of genetic combinations, was used to develop HGS's new anthrax drug, ABthrax. Animals given the drug just before or just after being exposed to anthrax successfully fought off the disease. HGS targeted anthrax after the spate of anthrax-infected letters 18 months ago and quickly came up with something that worked on animals.

Under federal bioterrorism laws, animal testing alone can qualify a drug for approval as a defense against germ warfare as long as it is proven safe for human use. Testing a drug for safety is usually just the first phase of winning approval, but in this case it could be the last.

The customary second phase of testing, to determine whether a drug is effective, very nearly tripped up the other breakthrough product announced last week by HGS. That drug, Repifermin, is meant to prevent the painful inflammations of the mouth, throat and digestive tract that often are side effects of chemotherapy .

Given to patients after chemo in a 1991 trial, Repifermin did not work. But HGS tried a preventative approach, starting patients on the drug before chemotherapy, and got positive results.

The announcement of that research last Wednesday gave a second boost to HGS stock, catching even analysts close to the company off guard.

"The Street had written off Repifermin" as a chemo drug, noted Edward Tenthoff of ThinkEquity Partners, a San Francisco firm that does research for big investors. Only when HGS brings its first product to market will it graduate from being a research outfit to being a drug company. The new anthrax drug, however, "could dramatically accelerate HGS's time to market," Tenthoff said. If ABthrax proves safe, it would be on the market within a year.

Whacking two years off the timetable radically alters calculations that analysts use to value biotech stocks. Individual investors tend to think in terms of what dread disease a new drug will cure. Analysts get very precise about how many patients will need it, how much they'll pay and how fast use will grow. Feeding those figures into their computers along with timetables, interest rates and other costs, analysts come up with sales and profit estimates that can be translated into stock price projections.

The Rationale for the Rise

Changes in those calculations are why shares of Digene jumped 32 percent last week.

On Tuesday, the FDA approved new uses for Digene's test for the human papilloma virus, which causes cervical cancer.

For half a century, women at risk for cervical cancer have been getting Pap smears, a test that looks for abnormal cells. Digene's HPV test had already been approved as a follow-up to a positive Pap test. Now the FDA has decided the Digene HPV test can be used with the Pap smear. Together, the two tests yield nearly100 percent accuracy, Digene says, citing its own research.

Digene stock, trading for $15.52 a week ago, closed at $20 Friday. While scientists talked about saving women's lives, analysts calculated how much insurance companies would pay for such a test, how much medical labs would charge and how much money Digene might make.

Their calculations provided a rationalization for investors to pay $20 for a stock that Wall Street had valued at only $6 to $8 a share last year.

The same kind of calculations underlie the recent rises in the stocks of United Therapeutics Corp. (whose IPO was underwritten by A.G. Edwards), up from $14.70 a share to $17.17 in the past two months, and Martek, whose stock has climbed from around $12 a share last summer to $27.87 Friday.

Martek markets two oils that are added to canned baby formula. After spending years winning regulatory approval for its oils, Martek now is selling them to all the major formula makers. Analysts are valuing the company based on how much of the market Martek can capture and how fast.

As of the end of last year, 550 patients around the world were using Remodulin, a drug developed by United Therapeutics of Silver Spring to treat life-threatening pulmonary hypertension. But the drug is being adopted rapidly by doctors. Remodulin sales are projected to top $36 million this year and savvy investors are already calculating what that should mean for the stock price.

So the bottom line is that biotech isn't exactly back, but it is off its back.