THE FEAR OF GOD GRIPS THE HEARTS AND SOULS OF BIOTECH INVESTORS

Since the Hillary Clinton comments pertaining to expensive drugs costs, the biotech index is off by 14%. Understand something, this sector was in bubble mode, thanks to Fred Wilson and his cohorts cornering innovation in the tech space, hoarding them like greedy little goblins in the private markets. I’d be remiss if I didn’t mention that NASA found evidence of “flowing water” on Mars today, a precursor of an alien invasion no doubt.

Regarding the biotechs: these are no longer trading on prospective FDA decisions or takeover targets, only fear.

Biotech

Hospitals

Big Pharma

Inside of Exodus, I track high valuation stocks in what I call a ‘bubble basket’. Said basket peaked on 7/23/15 at $122.6 and is now trading at $92.79. Last year October 13th, the index hit a low of $87.30, before spring boarding to $101 by Halloween. The all-time low of the index was reached on 5/8/14 at $82.57. Back then, doom and plenty of gloom was rife in the daily stock market discussion. Persons of great importance would gallivant onto the teevee stations to cast aspersions and stake a claim in the top of the stock market, never to be reached again.

By July 1st of last year, the bubble basket hit a high of $104.76, a gain of 26% in less than two months from the contretemps festooned days of May.

One last thing before I go (extra Columbo), just in case you thought the biotech index was cheap, I wanted to place some hard facts on the table.

That’s a 10 graph of the biotech price to sales history. As you can see, it is elevated to absurd levels right now–trading at 32x sales. That number is a little misleading, however, since most biotechs don’t have sales to speak of. For the most part, the biotech industry is wrought with r&d labs that were brought public due to investor demand, again thanks to Fred Wilson. Major pharma, a better barometer of healthcare valuation, is trading with a p/s ratio of 5.86x, the lowest level since 2012.