FOCUS ON FUNDS Biotech: No Downside Risk Here Biotechnology stocks have suffered enough. One analyst reviews performance and valuation for the past 19 years. By Crystal Kim June 1, 2017 1:10 p.m. ET Biotechnology stocks have becomevictim to policy uncertaintyand now look seriously undervalued. Investors seem to be getting hip to it. Photo By Getty Images Both theiShares Nasdaq Biotechnology ETF(IBB) and theSPDR S&P Biotech ETF(XBI) have risen 1.5% and 2.4% respectively, so far on Thursday. Oppenheimer's Leah Rush Cannnotes that biotech stocks are trading at a 30% premium to the market. The group had a price-to-earnings-growth ratio of 1.86 times versus the S&P 500's PEG ratio 1.43x through the end of May. That said, biotech has in the past 19 years traded at an average PEG premium of 97%. In relation to the S&P, the sector's price-to-earnings ratio expanded from 1998 to 2002, sharply contracted from 2002 to 2010, expanded again from 2011 to 2014 and has been contracting from 2015 to now. Cann explains: During the biotechnology multiple expansion vs. that of the S&P 500, which occurred from 1998-2002, the market was anticipating that the biotechnology sector would have significantly higher earnings growth than the S&P 500 would. As previously mentioned, the biotechnology sector had P/E-multiple contraction from 2002-10; however, during this time earnings growth for the biotechnology sector was expected to exceed that of the S&P 500 in five of eight years, but not in three of the years, where it was expected to be far less than the S&P 500. In 2012, the market was anticipating that the biotechnology sector would have rapidly accelerating earnings growth and would meaningfully exceed that of the S&P 500. With future earnings growth estimated to be lower than the S&P 500 biotechnology stock multiples have contracted again. Cann says "the biggest potential catalyst" would be better expectations for earnings growth in 2018. And based on the firm's valuation model, the sector is two standard deviationsbelow a sell-signal trigger level. from Barron's
LOL, i saw a guy whose an 8 figure trader make the comment the other day "Apparently biotech is the new flight to safety" Thought that was pretty humorous, any good news on biotech phase 1,2, or 3 it doesnt matter, if its a drug to help dogs, doesnt matter, just buy biotech, funniest shit ever, people dont realise biotech goes to 1 dollar overnight when it blows up.
If anything Biotech is much riskier, your only ever 1 bad FDA decision away from insolvency when you buy a junior biotech.
famous last words.... I lost a ton last year due to political rhetoric. I dumped it, then got back in when Trump won. I expect them to go up to the level before Hillary started talking price controls last year.
Yeah, but Trump's full of shit. http://www.cnn.com/2017/04/04/health/fda-gottlieb-background-qualifications/ https://www.statnews.com/2017/05/24/trump-budget-nih-fda/ https://www.statnews.com/2017/02/28/trump-address-rare-disease-drugs/
Slamming the price of drugs at the same time a politician claims they want to streamline the approval process is nothing new for politicians. Recession2016 is right, both Hillary and Trump have slammed the cost of drugs, made alot of money shorting PFE 1 day when Trump made it part of his speech when he first came into office and had way more of an effect any time he spoke.
Its easy to slam Biotech firms for the cost of drugs, but no one mentions that 90% of drug innovation comes from the U.S. specifically because if they invent a drug they can profit off of it here. For anyone interested in the debate Skrelli actually made a pretty good argument on it, here is one of various videos of him decimating people on this subject. Im conflicted on this one, at the same time, everyone looks at them like they are just leeches, most dont understand the full argument. I think there is no doubt the drug companies are gouging but at the same time, if we put in price controls to a point where all they can do is manufactur drugs they have created, there is no more innovation. Basically U.S. consumers are subsidising the entire world when it comes to drugs. U.S. pays the exorbitant rate, everyone gets it for next to nothing, that has to change somehow.
Nah, the patent controls allow them to make all the money they want for the duration of the patent. I think 21 years is the max for a US patent on pharma? Once a patent expires, how can there be gouging?