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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: Zeev Hed who wrote (70884)5/23/2002 4:31:28 PM
From: DlphcOracl  Read Replies (1) of 99280
 
Regardless of the FDA's decision on Biogen's Amevive, any strength in the biotech sector (BTK) should be shorted (although the biotech euphoria may last several days). The fundamental problems with the sector have not changed and are as follows:

1. Very slow & expensive testing and development of new drugs.

2. Even slower FDA approval, often requiring additional Phase III trials which are quite expensive to conduct. Only the largest cap biotech companies have the cash on hand to sustain themselves during the laborious clinical trials while awaiting FDA approval.

3. The ImClone kiss of death. Last year's ImClone debacle marked (IMHO) a sea change which precipitated this year's marked decline in the biotech sector. Specifically, the large pharmaceutical companies are no longer throwing inordinate amounts of money at the small, one-product biotech companies in the hopes of catching pharmaceutical lightning in a bottle. If the large pharmas do become involved with a biotech company, you can bet that it will be on very advantageous terms, severely compromising the profitability of the biotech company's wonder-drug.

4. The internet-like balance sheets of all but a handful of biotech companies. Most companies are still not profitable, are bleeding cash (high burn rate) and are dependent on 1 or 2 products still in Phase II or Phase III trials.

In summary, let this nonsense play itself out; then, when markets begin their summer swoon, consider shorting the BTK. The decline in this sector will (IMO) be disproportionate.
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