Your editor has been resistant to calling for a biotech bubble for years…
I’ve watched countless others attempt the call. But it’s always ended poorly for them, and to be quite honest, dead wrong.
It was July 2014 when Janet Yellen, the head of the Federal Reserve told us:
“Valuation metrics in some sectors do appear substantially stretched – particularly those for smaller firms in the social media and biotechnology industries.”
She made similar calls in the S&P 500, and most recently commercial real estate.
Even the press argued for a bubble.
All of a sudden, the sky was falling. No one wanted to touch biotech.
Evidently, the iShares NASDAQ Biotechnology Index (IBB) didn’t get the memo, soaring 36% since then, as compared to the flat returns on the S&P 500…
That may seem like an extreme gains for any sector. Bubbly even…
But our advice on biotech stocks remains the same as it’s always been.
Let the winners ride.
Is the Biotech Bubble about to Burst?
Not at all…
“You’d have to be an idiot to turn your back on this humongous growth market,” says Jody Holtzman, head of the AARP’s Thought Leadership unit in recent months.
Two of the most important factors for biotech’s bull market continue to be rapid innovation and favorable demographics.
Eighty million baby boomers are retiring (10,000 by the day) for the next 20 years, demanding greater health care, and new drugs.
Then, another 32 million formerly uninsured Americans now have coverage under the new laws, as well. Yet, the bears continue to call for frothy valuations in a sector very likely to boom for years to come.
While market bears will continue questioning the sustainability of rally, we have to look at the big picture. The overall fundamentals of the sector remain strong. Innovation and newer technologies are emerging. New groups of people now have coverage.
And we still have an aging population of Boomers that will require further advancements.
The advancements in the sector are tough to ignore too.
Look at immuno-therapeutics, for example.
The immunotherapy space – still on course to exceed $35 billion and become the “backbone” of treatment for up to 60% of cancers in the next 10 years – is still heating up faster than anticipated.
Weeks after Merck invested in the next generation of therapies harnessing the body’s natural defenses, another round of deals showcases the popularity of using the immune system to attack cancer.
Sanofi is partnering with Regeneron to develop and commercialize new cancer treatments.
Merck is partnering with Ablynx and just bought cCam Biotherapeutics, giving it access to a monoclonal antibody that targets an immune checkpoint protein to treat advanced or recurrent cancers.
And Five Prime Therapeutics has expanded its immune-oncology pipeline through collaboration and licensing agreements with Inhibrx, gaining access to a glucocorticoid-induced tumor necrosis factor receptor antibody program.
There’s no bubble. Buy the dips. And let the winners ride.