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Biotech Bubble Reaches Epic Proportions As Short Interest Rises
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:
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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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Shorting stocks is so pre-2007.
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.
FDA......bought and paid for.
Like all alphabet agencies.
A Trillion Euros say you are wrong!
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.
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/
Which ISIS?
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.
If you want to deflate a rubber balloon, put a piece of tape on it, then poke a hole in the tape.
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.
You mean the shorts have not covered yet!!!!