Scott & Peter,
This discussion makes me think we should start an "Emotional Biotech Valuation" thread (though I guess we have enough threads). As a start, I have an idea about the psychology behind Peter's observation WRT the stock price relationships between biotechs and pharmas:
I think it's rotational. When investors in drugs are in frenzy mode -- as evidenced by the tendency for even bulletin board biotechs to go parabolic en masse -- we see the pharma and biotech prices moving in tandem, rising tide lifting all ships, blah, blah. When the frenzy ends, the stampede is to more conservative stocks. But the drug investor is still going to put money into an industry he/she knows. The market demographics are the same, for one. One evaluates clinical data from a pharma the same way as that from a biotech, for another. So to capitalize on their medical knowledge, these investors go for pharmas first and foremost. I would imagine this applies at the institutional level as well as the individual level.
The trick is to find these inflection points, a la Peter's hindsight observation that the frenzy was ending when the biotechs failed to pop after secondaries. Anyone else have any such metrics to be backtested?
Cheers, Tuck |
