Time for some overall valuation thoughts:
The ratio of the BTK to the DRG index is currently 1.88, a level not seen since mid-February (on the way up) and mid-March (on the way down). The March 7 peak was 2.625, and the bottom since then was about 1.06 in late April and about 1.1 in late May.
By way of comparison, the adjusted "companion" NASD/DOW ratio is currently at 1.80 after a peak of 2.5 a week after the biotechs peaked. The low for this one has been about 1.5, in mid-May. (The adjustment is to multiply the ratio by 5 to make it roughly comparable).
So in some relative sense, the biotechs are currently not much ahead of the NASD, although they of course dipped deeper in their trough.
The next index of frothiness is the response to news. Clearly there was something of an overreaction to the stem cell political development, although the individual stocks pulled back fairly quickly. One characteristic of the long surge we had to the peak was that stocks didn't pull-back after popping on news. Interestingly, the enthusiasm here spilled over into the better-quality biotechs, indicating to me that people were looking for an excuse to buy biotechs.
In terms of forthcoming news, we are clearly heading into a good time of the year. At some point we will also see the long-delayed CLTR and AVRN filings, which should restore some confidence.
On the IPO/offering front, we are not seeing real strong performances. The IPO calendar has been relatively light, and follow-on offerings have been comparatively few. (The smaller companies are all getting their money from Acqua Wellington instead). However the IMNX overhang is of concern.
Bottom line here is that we have some froth and so I would not be on margin here. OTOH, the better quality stocks seem to be acting well, and maybe this run will have a ways to go yet.
Personally, I've been a net seller over the last few weeks. My particular sales have been more dictated by tax issues than valuation concerns (except for STEM), but on the buy side I've added a little IGEN (see discussion at Munch thread) and CELG, and initiated "get my toes wet" positions in FOCL, ARIA (back in after a fairly long absence), ARNA and QTRN.
Peter |
