Biotech Stocks Back Up High : Analysis

Biotech Finance News

Biotech is back. This spring, biotech stocks collapsed. The Nasdaq Biotechnology Index tumbled 22% in about six weeks, inflicting huge losses on hedge funds and other investors, including holders of a popular exchange-traded fund known for its ticker “IBB,” the iShares Nasdaq Biotechnology ETF , which has about $5.5 billion in assets.

So far in August, the Nasdaq Biotechnology Index is up 10%. That puts it on pace for its biggest monthly advance since July 2013, thanks to surging share prices at Gilead Sciences Inc., Celgene Corp. and Amgen Inc. And on last Tuesday, index hit a new record high, for the first time since Feb. 28. It pulled back slightly early Wednesday, easing 0.3% in midmorning trading.

Investors are enamored with the fact that for much of the industry, “earnings are just growing at phenomenal rates that you really can’t find in other industries,” said Ziad Bakri, who analyzes biotechnology companies at mutual fund firm T. Rowe Price Group Inc.

Biotech Stock News

“For the most part, these large caps have everything you would want in a really good business. They have really good management, they have pricing power on their drugs, and they basically have monopolies in limited areas, with little competition,” Mr. Bakri said. For example, a strong sales launch for hepatitis C pill Sovaldi has vaulted Gilead into the ranks of top-selling pharmaceutical companies.

The rally has reversed the March selloff, which also stung buyers of a host of newly public companies. (Healthcare has seen the most initial public offering activity of any sector during the past year’s IPO boom.) At the time, many attributed the swing swoon to a rally in 2013 that market participants said simply left the sector overvalued, and thus vulnerable to quick shifts in sentiment.

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Biotech Financial News

Since the washout, Wall Street’s prognosis for the biotechs’ bottom lines has improved. Analysts’ forecast for biotech earnings have been on the rise. As a result, the Nasdaq Biotech Index is actually 32% actually cheaper, relative to analysts’ next-12-month profit forecasts, than the last time it hit record territory.

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