Despite being scalded during the dotcom meltdown, investors in Hong Kong are venturing into the murky waters of biotechnology funds, a highly risky and volatile investment move, hoping to reap the same high returns that the sector has yielded in the past two years. Kurt von Emster, fund manager of the Franklin Biotechnology Discovery Fund, said biotech stocks, similar to straight technology stocks, involved high risks and the market was very volatile - hence were not suitable for every investor. 'The stock can lose up to 80 per cent in a single day,' he said. Of the 400 publicly traded biotech companies in the United States, 240 are very small (less than US$1.5 billion) with only one or two products. Biotech funds, which would only appeal to high-risk takers and those who had a time horizon of at least three years, should only be part of an investors' portfolio as a diversification - at the most 5 per cent to 10 per cent - said Mr von Emster, who has more than 10 years' experience in the sector. As an example of the sector's volatility, Mr von Emster pointed to Amgen, Britain's largest publicly listed biotech company. Amgen is engaged in a patent lawsuit with biotech company Transkaryotic. He said if Amgen lost the case, it would cause the stocks to fall by 30 per cent within a day. 'This will affect the whole industry,' said Mr von Emster who, at the same time, was optimistic that Amgen would win the lawsuit and push up the stocks. He said another unknown that would have a major impact on the biotech industry was the possibility of pharmaceutical sector reform by United States presidential candidate Al Gore, who is looking likely to win the election next month. 'This is, however, a short-term concern,' said Mr von Emster. The major application of biotechnology has transferred to health care from food production. The industry now uses proteins and molecules instead of the chemicals traditionally used in medicine. Despite the uncertainties and risks, the sequencing of the human genome, the emergence of several new blockbuster drugs and the increasing pace of innovation that has captured investors' attention in the US have all played a part in the continuing emergence of biotechnology in Asia and Europe. For the six months to February 29, the Nasdaq Biotech Index rose 135 per cent, while the Bloomberg UK Biotech Index rose 95 per cent. These rises were fuelled partly by news surrounding the near completion of the Human Genome Project, the progress of which was furthered by rapid technological advances and by cash injections from investors returning to the biotech sector from the Internet initial public offering arena. About 35 per cent of the US$150 million sales of the Discovery Fund has come from Hong Kong and Singapore investors. The fund was introduced in Hong Kong, other parts of Asia and Europe in April and is slowly gaining a foothold in Hong Kong, Singapore and Taiwan. The fund is a cloned version of the Franklin Biotech Fund, the second-largest biotech fund group in the US, which started in 1997 with US$2 billion in biotech assets and had increased in value by 250 per cent by September 25 this year. The Discovery Fund has 95 per cent of the same holdings and had gained 38 per cent growth as of September 25. Mr von Emster said Hong Kong investors were more conservative in their dealings with the fund than other Asian investors. The Singapore Government will spend about US$600 million on life-sciences research in the next several years to spur the development of the industry in Singapore. Worldwide, there are about 4,000 biotech companies employing 200,000 staff, and estimates show biotech product sales may grow to US$88 billion by 2010. Also, there is still about US$5 billion worth of stock offerings outstanding in the market, according to Mr von Emster. This year, the industry has raised about US$20 billion from investors through stock offerings worldwide - more than the past three years of biotech stock offerings combined. Although there is consumer resistance to genetically modified food products in some countries, Mr von Emster is confident the number of biotech products on the market will double by 2002 from a mere 125 today. 'Out of the 260 products which are already in their last stage of development, another 125 are due to hit the market in the next three years,' said Mr von Emster. The number of profitable biotechnology companies would more than triple by 2003, from 15 to 55, indicating that the biotech industry was in the early stage of growth, he said. Mr von Emster sees many biotech companies reporting growth curves similar to those shown by top technology companies before the stock market boom. However, as some investors might have learnt from the dotcom debacle, a stock cannot rise faster than the intrinsic value of the business indefinitely, and biotech is certainly not an easy sector for the individual investor.