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The biotech sector's Nuclear Winter of 2002 -- triggered by a rash of drug testing disappointments and accounting shenanigans that hammered credibility and drove bellwether stock prices down 40 per cent -- isn't showing any signs of a spring thaw.

"Another broad biotech selloff appears likely," Research Capital Corp. analyst Andre Uddin warned in a report.

Besides citing several technical indicators for his outlook, he said the sector was trading at 38 times earnings in mid-December, "which may appear low relative to the last two years, but . . . these are the same valuation levels that we saw during the bull market of 1996."

Looking into early 2003, he suggested that stock prices may suffer from a lack of major medical conferences -- largely held in the fourth quarter -- where companies often make a big splash releasing new drug testing results.

Mr. Uddin also cautioned that biotech financings have picked up in the past few months, which "makes us somewhat concerned. Low financing levels are traditionally a good indicator of a market bottom."

According to figures compiled by Dundee Securities Inc., Canadian biotechs raised an estimated $337-million of new equity in 2002, down from $1.6-billion in 2001, when the figures were inflated by Biovail Corp.'s $666-million (U.S.) stock offering.

"The financing window will likely be closed for another three to six months and we'll need some positive momentum in the sector to reopen the window," Dundee analyst Claude Camiré said.

In Mr. Camiré's universe of 90 biotech stocks, 66 fell and only 24 rose last year, with many companies trading at or below their cash values.

Among widely followed gaining issues were Canadian Medical Laboratories Inc., ID Biomedical Corp., Neurochem Inc. and Patheon Inc.

Big losers included Biovail, Angiotech Pharmaceuticals Inc., QLT Inc., Hemosol Inc. and TLC Vision Corp.

The Toronto Stock Exchange's health care index, which includes 15 stocks, fell 34 per cent last year, compared with a 14-per-cent loss by the S&P/TSX composite index.

In large part, Mr. Camiré blames the negative tone on clinical setbacks experienced by companies such as Angiotech, Hemosol, AltaRex Corp., AnorMed Inc., Inflayzme Pharmaceuticals Ltd., Labopharm Inc., ConjuChem Inc. and GlycoDesign Inc.

"There was some positive news, but not a lot," he said, citing encouraging developments at QLT, Stressgen Biotechnologies Corp., Neurochem and ID Biomedical.

It's not unusual to see drugs fail in development.

Brian Bapty, an analyst with Raymond James Ltd., notes that of five drugs that enter human clinical trials, at best only one will eventually receive marketing approval.

Two winners last year were Isotechnika Inc. and Stressgen, which signed blockbuster drug development deals with Swiss drug giant Roche AG. But after some initial hoopla, shares of both companies ended the year at levels well below where they were trading when their respective deals were announced.

Corporate news flow is important to attract retail investors, which remain the life blood of biotech stocks.

"In the absence of news last year, the market was pretty merciless to junior biotechs, and I think this is going to continue through early 2003," Mr. Bapty said.

As an example, he cites QLT, which traded as high as $53 (Canadian) in January, 2001, and finished 2002 at $13.40.

"In QLT's case, a development pipeline exists, but there is a gap in news flow with respect to product advancement within that pipeline," he said.

"Compounding this is slowing growth for [QLT's] lead product and a very vocal competitive landscape."

This year, QLT is expected to increase the market penetration of its Visudyne treatment for blindness and to provide more clinical data about Visudyne and tariquidar, which is a late-stage drug to prevent cancer patients from developing resistance to chemotherapy.

Analysts also will be watching for additional clinical testing results this year from Angiotech, Stressgen, Isotechnika, Hemosol, Labopharm, Micrologix Biotech Inc., Cardiome Pharma Corp., AnorMed Inc., Vasogen Inc., Theratechnologies Inc. and AEterna Laboratories Inc.

Angiotech also will begin receiving royalties this year from the sale by its U.S. partners of coronary devices coated with its paclitaxel drug technology.

On the product development side, Axcan Pharma Inc. is awaiting the green light from the Food and Drug Administration in the United States in order to launch a new ulcer drug and expand the market for its photodynamic therapy, where drugs are activated by a laser.

Biovail also is in line for FDA approval of its Cardizem LA heart drug in the first quarter and a new once-daily version of GlaxoSmithKline PLC's anti-depressant Wellbutrin in midyear.

Inex Pharmaceuticals Corp. is expected to unveil a new sales and marketing partner in the first half to replace Elan Group PLC, with an FDA filing for its flagship chemotherapy drug in the second half.