This week Wood Mackenzie, an Edinburgh-based research and consulting firm, reviews recent trends in biotechnology stocks.

Having been fairly flat since April, the Nasdaq Biotechnology Index twitched upwards in mid-June and then gathered momentum to show a sustained rise during July. Thanks to stronger than expected second-quarter financial results from several companies, the index rose by an encouraging 14% over the past two months.

Credit: NASDAQ

In July, industry bellwether Amgen of Thousand Oaks, California, regained its crown as the largest single company in the sector by market capitalization, after announcing strong sales growth of its existing drugs, as well as positive clinical-trial results for several new ones. The tussle for the top market valuation between Amgen and Genentech of South San Francisco, California, has helped to bring investor attention to the sector as a whole, with a positive effect on stock valuations.

Other companies reporting strong second-quarter results include Genzyme of Cambridge, Massachusetts, whose improved gross margins on drug sales led to increased earnings, and Kos Pharmaceuticals of Cranbury, New Jersey, which saw increased sales of its cholesterol and asthma drugs.

Protein Design Labs of Fremont, California, announced that it expects to achieve sustainable positive cash flow by the end of 2005. The company was also buoyed by the announcement of a strategic alliance with Biogen Idec of Cambridge, Massachusetts, to co-develop monoclonal-antibody drugs.

Despite the index's recent good performance, it has still merely regained the value it had at the beginning of the year. The industry needs to maintain its momentum for a few months more if it is to achieve a turnaround in its fortunes.