For Biotech Stocks, '09 May Be Touch and Go

The turmoil and uncertainty in the broader economy and financial markets coupled with big change coming to Washington, D.C., make it very difficult to predict the performance of biotech stocks in 2009.

Perhaps more than ever, the biotech sector is at the mercy of outside forces. President-elect Barack Obama has promised sweeping changes to the country's health-care system, but so far, details are lacking. The economy is in a recession, but we don't know how deep it will be or how long it will last. Wall Street continues to reel from crisis to crisis, leaving the credit markets in lockdown and many investors on the sidelines.

Gone are the days when biotech stocks could skate through turmoil like this untouched. Overall, the biotech sector is down about 15% for the year, based on the Nasdaq Biotechnology Index. That's a less sickly return than the broader markets, but nothing to shout about when you consider that stronger performance from the relatively few big-cap biotech stocks masked the decimation in market value dealt many small- and mid-size biotech stocks.

Through the middle of December, the group of large-cap biotech stocks -- Genentech(DNA Quote), Gilead Sciences(GILD Quote) and Amgen(AMGN Quote), among others -- was down 5% for the year, while small-cap biotech stocks (those with markets caps between $100 million and $250 million) were down almost 60% for the year, according to Rodman & Renshaw.

But this column is supposed to be a preview of 2009, not a rehash of the pain biotech investors experienced in 2008, so let's take a brief look at some the macro issues that are likely to affect biotech stocks in the next 12 months.