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Biotech / Medical : Biotech Valuation

CRSP 56.51

-2.4%

3:59 PM EST

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To: johnsto1 who wrote (1312)	7/5/2000 5:03:31 PM
From: Biomaven	Read Replies (1) of 52153

I feel there has been a significant change in the market over the last two weeks or so. It now looks as if we have finally decoupled from something that has been driving biotechs for the last quarter. For the period from the beginning of the year (and most particularly from mid-March) there has been an exceedingly tight relationship between the ratio of the BTK index to the DRG index as compared to the NASD vs. the DOW. On a 60 minute graph virtually every peak and valley of these two ratio graphs coincided through about June 25th. Since then these two graphs have been moving independently, and today this divergence was particularly marked. In a sense these graphs can be viewed as an "old economy vs. new economy" thing, or perhaps a measure of how much people would pay for a "story" as opposed to current earnings. Of course from a fundamental valuation perspective the drugs and biotechs should really move somewhat together, although of course not completely. To have them moving inversely, as has generally been the case over these few months is pretty perverse. Suddenly today people are paying up for the biotech story, while selling the technology stories and the dot.com fantasies. What does this mean for the future? Consult your local DNA sequencer. (I think the crystal ball readers are all out daytrading. <g>) However, it does signify that the pattern that has been driving the biotech market day-in and day-out (in fact minute-by-minute is more accurate) for over three months appears to have changed, at least for now. If I had to guess, I would say it was bullish for biotechs, although of course we could not withstand a serious overall market decline. Strength in both the drugs and biotechs simultaneously has been rare this year, but it has happened it has generally augered some biotech strength. Peter

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