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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: Sam Citron who wrote (7507)	12/15/2002 6:14:28 PM
From: Biomaven	Read Replies (2) \| Respond to of 52153

What I was saying is that sometimes the market has an appetite for high risk / high reward stocks, and sometimes people just want to hunker down in something boring. Biotechs and other "story" stocks tend to have their potential returns out several years from now, in opposition to a "cash cow" type of stock. High risk stocks tend to be much more volatile than low risk stocks. Hence the appetite (or non-appetite) for biotech stocks and for tech stocks turns out to have been closely linked. Volatility in a stock price is never good (unless you are playing in the options market, that is). However, non-beta volatility is volatility that can be largely diversified away - hence the notion that you never want to hold just a few biotechs. Before last year, I had thought that the fundamentals of individual biotechs were pretty uncorrelated. That meant that if you had a large basket of biotechs you would be somewhat insulated from the market as a whole. This turned out to be wrong for a few reasons. First, the raising of the FDA safety bar hit everyone in the industry. Second, there were enough individual biotech failures that it became clear that with the rush of money into the coffers of companies, many had moved too quickly and had not been sufficiently cautious in their choice of projects or had simply been too aggressive with their development strategy. Finally, and perhaps most significantly, biotechs were (unfairly some might say) tainted by the internet/telcom failures, although obviously the IMCL and ELN debacles didn't help biotechs distance themselves from the others. Bottom line is that in 2001 and 2002, anyone holding a diversified biotech portfolio got clobbered. I've done somewhat better than the averages, because although I had a big loser (SEPR) I also had some good picks among stocks I hold in size (IGEN, SCIO, FRX, ITMN, NTII). I've also been partially hedged, which of course has helped. Peter