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Biotech’s bubble burst? No, fundamentals remain sound

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By Peter Winter
BioWorld Insight Editor

It is alliteratively satisfying to combine “biotech” with “bubble,” and the two words have been bandied around frequently for the past couple of days causing massive trading in biotech shares that has resulted in the largest two-day declines that biotech indices have experienced since early 2012. The selloff trigger was attributed to concerns in U.S. government circles over the price of a hepatitis C drug treatment from Gilead Sciences Inc.

While this negative sentiment did not cause a full-scale panic among investors, it certainly got ugly for the sector with the BioWorld Blue Chip Biotech Index closing Monday down 7.5 percent for the two-day trading period, with all companies in the group seeing their share values fall. For example, biotech’s top two companies by market cap, Foster City, Calif.-based Gilead and Thousand Oaks, Calif.-based Amgen Inc., recorded a drop in share value of 4.7 percent and 4.5 percent, respectively.

Commenting on the state of affairs, Wall Street analysts were quick to say that there wasn’t any reason to hit the panic button just yet. The overall sentiment among investors still remains positive with the expectation that biotech is staying on track to record another excellent year. With saner heads prevailing, the sector started to recover and by close of business Tuesday the Blue Chip Biotech Index finished the day unchanged, demonstrating that the selloff looked like it had run out of steam.

With the general markets also having a good day and the Dow Jones Industrial index closing up 0.6 percent, buoyed by better-than-expected consumer confidence data, biotech is poised once again to burst the bubbleology theories.

Editor’s note: Next Monday’s issue of BioWorld Insight will be providing a detailed analysis on the performances of BioWorld’s biotech and pharma indices.