An index of biotech drug companies shares has climbed nearly
50 percent in the past 12 months to all-time highs as the industry starts to
launch drugs developed by identifying genes associated with disease.
The rise at such a fast pace is triggering the inevitable
talk of a bubble. Although it can follow the opposite direction. Manly because
of a problem of the insdustrie itself. 90 percent of experimental drugs that reach
mid-stage testing in humans do not make it past that point.
Compared with a year ago, the Nasdaq Biotech Index,
which is weighted by market cap, is up 45 percent. Over the same period, the
S&P 500 Index has gained 25 percent.
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Gilead Sciences, the world's largest maker of branded HIV
drugs, is viewed as the leader in a race to develop a more safe and effective
therapy for hepatitis C, a market Wall Street expects to garner billions of
dollars in annual sales.
Short interest in biotech companies with market caps between
$2 billion and $10 billion has fallen to 9.2 percent from 11.3 percent in the
past 12 months, while short interest for companies with market caps of $500
million to $2 billion has increased to 15.2 percent from 12.7 percent over the
past year.
Wall Street analysts estimate that shares of large-cap
Gilead, which have more than doubled over the past year, trade at about 26
times 2013 earnings and 12 times 2015 earnings.
The question is how long the rally will continue.
Consensus estimates call for average combined annual earnings
growth of 21 percent for biotechs in the next three years, compared with 9
percent for S&P 500 companies, according to Deutsche Bank.
"Biotech is both the worst business in the world and the
best business in the world”. The decision is on you to invest or not to.
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