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

The Nasdaq biotechnology index fell sharply in early October, losing 9% of its value following a three-month rally. The decline was influenced by industry-specific events, but also by broad market trends, with the fall being mirrored by other, more general indices. The index recovered to end the period just 0.7% down, driven by licensing deals as well as strong earnings for the year's third quarter reported in November. All told, the index is up 3.6% on the year to date.

Clinical-trials failures contributed to the October fall: Human Genome Sciences of Rockville, Maryland, saw its shares plunge 45% after clinical results showed that its antibody drug candidate LymphoStat-B was ineffective in treating lupus. The drug later partially redeemed the company's share value with encouraging clinical-trials results for rheumatoid arthritis, limiting the loss over the period to 35%. NABI Pharmaceuticals of Boca Raton, Florida, rode out the early fall only to take a 74% nosedive in share value in early November after poor clinical-trials results halted further development of its StaphVax vaccine to prevent dangerous bacterial infections.

The market recovery was supported by deal-making activity. Early last month, Pain Therapeutics of South San Francisco entered a strategic alliance valued at more than $400 million with King Pharmaceuticals of Bristol, Tennessee, to develop an addiction-resistant narcotic painkiller. And in late November, Incyte Pharmaceuticals of Wilmington, Delaware, signed a broad research and development agreement worth up to $800 million with drug giant Pfizer. Despite the November surge, the Nasdaq biotechnology index has significantly underperformed compared with wider market indices in the past month.