The Daily Interview: The Outlook for Biotech Stocks
Biotech investors: Fasten your seatbelts, severe turbulence ahead.
Monday's almost 8% drop in the biotech sector suggests that investors don't have the stomach anymore for high-risk investments, says Stefan Loren, managing director and biotech analyst at Legg Mason Wood Walker. While Loren still believes a sector recovery is inevitable, many of the old rules just don't apply anymore.
We talked to Loren about his reaction to Monday's trading and his thoughts on what biotech investors can expect in the next few days and weeks.
TSC: What's your gut reaction to Monday's biotech sector selloff?Loren: There is a flight to liquidity and safety. The market is telling us that there is going to be a nasty downturn and that risk tolerance has gone way down, so that high-beta stocks in biotech land have really gotten hurt. But at the same time, drug stocks were flat or slightly up for the day [on Monday] because drugs are much more resilient. The money is going someplace, and the question is where are health care funds putting it? Right now, they're putting their money into pharmaceuticals. TSC: The fall is supposed to be the time of the year when biotech really shines and big gains are made. Should we forget about that happening now? Loren: After the summer malaise, we were hoping to see a little rebound in September, given all the meetings going on. This really takes a lot of wind out of the sails. There is no question that it's going to be a hard market. As much as I'd like, or hope for, a roaring recovery very quickly, it's not realistic. TSC: So we should expect more selling this week? Loren: We still don't know. From our contacts in Europe, they were telling us that they were going to wait and see. What happens if they decide that they're a little uncomfortable with our market and start pulling out of the biotech area? Well, given the liquidity, that's a bad event. Most Europeans have not acted yet, and that's a big question mark.
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