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Biotech / Medical : Biotech Valuation
CRSP 53.33-0.4%Nov 26 3:59 PM EST
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To: scaram(o)uche who wrote (3109)3/16/2001 10:37:56 AM
From: Biomaven  Read Replies (3) of 52153
 
Rick,

I think it just "feels" to us that someone is picking on biotech. My guess is that it is largely driven by fund redemptions, driven in turn by the NASD meltdown.

In the last few days the relationship I have talked about previously between the Dow, the NASD, the DRG and the BTK (or NBI) indices has returned with a vengeance, on a minute-by-minute basis.

When I compare a graph of the ratio of the NASD to the DOW to a graph of the ratio of the BTK to the DRG, you see an uncanny correlation. Virtually every peak or valley corresponds when you look at them on a short term graph.
(Users of QCHARTS can see this for themselves - just plot NASD / DOW and BTK / DRG on the same time scale below each other and use the cross-hairs to compare the times of each of the peaks and valleys).

So basically what we continue to see is people moving out of "new economy" stocks and into "old economy" stocks. Partly this is simply a flight to safety, and the high-volatility biotechs are viewed as "unsafe" (or at very least not conservative). Partly it is the funds that hold biotech tend also to hold other aggressive stocks that have been tanking, and so the redemptions spill over into the biotechs.

I'm sure you are getting some short-sellers getting into the act as well, but I don't think they are the basic drivers of what is going on. My guess is there are some big computerized program traders in the mix as well.

My view is that these movements in biotech stock prices are pretty much unrelated to fundamentals, but unfortunately that doesn't make them any less real.

Peter
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