Tags: biotech | stocks | bubble | Ritholtz

Ritholtz Wealth Management's Brown: Biotech Stocks in Bubble

By    |   Wednesday, 26 March 2014 11:36 AM

Despite their decline of the past few days, biotechnology stocks have soared over the past several years, with the S&P 500 Biotechnology Index jumping 48.9 percent in the last 12 months alone.

The gains have pushed the sector into bubble territory, Josh Brown, CEO of Ritholtz Wealth Management, wrote on Yahoo Finance.

To be sure, the industry has legitimate strengths, he said. Biotech companies have vastly shortened the time it takes for their drugs to get to market, and government approval of the drugs has exploded.

Editor's Note: These 38 Dates Are Key to Bagging $313,038

But Brown still thinks there's a bubble. The S&P 500 Biotech Index has surged more than 400 percent from its March 2009, compared to 180 percent for the S&P 500 itself, he said. "And this does not include the hundreds of small- and mid-cap biotechs that have gone up even more."

About half the approximately 50 initial public offerings so far this year consisted of biotech companies, Brown said.

"The average gain for these new biotech offerings through the middle of March is over 50 percent. Anyone with a protein compound under a microscope and a clean suit can go public right now."

Some investors are growing cautious about the sector. "The level of volatility is increasing, and investor concern continues to go higher," RBC Capital Markets analysts wrote in a research note March 23, The Wall Street Journal reports.

"Sentiment is waning the most we’ve seen in the last [two to three] years."

Biotech stocks began falling Friday after three Democratic House members sent a letter to Gilead Sciences questioning the high price of its new Hepatitis C drug.

Editor's Note: These 38 Dates Are Key to Bagging $313,038

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StreetTalk
Despite their decline of the past few days, biotechnology stocks have soared over the past several years, with the S&P 500 Biotechnology Index jumping 48.9 percent in the last 12 months alone.
biotech,stocks,bubble,Ritholtz
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2014-36-26
Wednesday, 26 March 2014 11:36 AM
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