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Biotech Bubble Reaches Epic Proportions As Short Interest Rises

Tyler Durden's picture




 

In January we noted that despite Janet Yellen’s “irrational exuberance” moment when, last summer, the Fed chair mentioned biotech as a sector where valuations looked “substantially stretched,” biotech stocks have continued their relentless ascent thanks in part to M&A deals worth 40 times sales and IPOs for pre-revenue companies. 

Now, with the sector still making new highs, the bubble chorus is getting louder. 

Via Bloomberg

Biotechnology had the biggest weight Thursday of any industry on the index at 11.2 percent, edging out both Internet companies and computer hardware makers, according to data compiled by Bloomberg. The 269 biotech companies have been one of the biggest contributors to the Nasdaq’s gain, with a more than 500 percent return over the past four years, compared with 166 percent for hardware and 97 percent for Internet.

 

Buyers paid an average of 31 times revenue for $1 billion-plus drug deals in the past three years, according to data compiled by Bloomberg.

 

Before 2013, it was “very unusual” for a pre-clinical or phase 1 company to go public, said David Schechner, a managing director in life sciences investment banking. Yet in 2014, 10 did, compared with four in 2013. Those early stage companies might not have even considered selling stock a few years ago, he said.

 

Now there are signs that the biotech industry’s fortunes could change. One key measure of investor pessimism, the short interest ratio, has about doubled for the Nasdaq Biotechnology Index since 2013, according to data compiled by Bloomberg. 

 

While investors have profited during biotech’s rise, the concern is that a handful failures in clinical trials -- which isn’t out of the ordinary in this industry -- could send investors fleeing. The last downturn followed a two-year boom that started in 1998 and saw the Nasdaq biotech index rise fourfold. When it crashed, it took a decade for investors to get excited again…

Biotech rally and short interest since Yellen’s “substantially stretched” call:

*  *  *

We leave you with the following quote from Carole Nuechterlein, head of the Roche Venture Fund, who had the following to say about a 100% move in shares of a pre-revenue biotech on its first day of trading: 

“My initial reaction wasn’t, ‘Wow, this is great,’ it was more, ‘The end is coming.’”

 

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Sun, 03/08/2015 - 12:05 | 5866929 Temporalist
Temporalist's picture

Shorting stocks is so pre-2007.

Sun, 03/08/2015 - 12:27 | 5866970 Cognitive Dissonance
Cognitive Dissonance's picture

Looks like we've got another bubble. Where's the prick with the pin? What, there are no more? That sucks. Guess it's gonna come down the hard way then.

Sun, 03/08/2015 - 12:10 | 5866941 max2205
max2205's picture

FDA......bought and paid for.

Sun, 03/08/2015 - 12:47 | 5867009 Steroid
Steroid's picture

Like all alphabet agencies.

Sun, 03/08/2015 - 12:16 | 5866954 venturen
venturen's picture

 A Trillion Euros say you are wrong!

Sun, 03/08/2015 - 12:37 | 5866991 RyeWhiskey
RyeWhiskey's picture

Biotech may at least deliver some goods. What does Facebook, Twitter, and other "social" nonsense deliver??

If anything has to bust - it better be that SOCIAL MEDIA crap.

Sun, 03/08/2015 - 12:46 | 5867001 Headbanger
Headbanger's picture

They deliver new members to ISIS!

BTW,, What's your favorite Rye?

And I'm sure you're familiar with this site:

http://thewhiskeyjug.com/

Sun, 03/08/2015 - 18:19 | 5867806 bahaar
bahaar's picture

Which ISIS?

Sun, 03/08/2015 - 12:45 | 5867005 Steroid
Steroid's picture

Both deliver only promises. The demage is bigger in biotech due to more real promises you mentioned above.

You also have to see the unseen, the lean years after the bubble pops. Only the bankers and their cronies get rich.

Sun, 03/08/2015 - 12:46 | 5867006 Ginsengbull
Ginsengbull's picture

If you want to deflate a rubber balloon, put a piece of tape on it, then poke a hole in the tape.

Sun, 03/08/2015 - 13:29 | 5867127 farmerunder
farmerunder's picture

What could go wrong with spermicidal corn in the publics food? the problem with biotech is that on the one end its great, on the other end it could be agenda 21.

Sun, 03/08/2015 - 14:25 | 5867263 WTF2
WTF2's picture

You mean the shorts have not covered yet!!!!   

Do NOT follow this link or you will be banned from the site!