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TheStreet Open House

6 Drug Stocks Unworthy of Biotech Bull Market

Stocks in this article: CYTX REGN BPAX ENMD HGSI GALE

Updated with closing stock prices.

BOSTON ( TheStreet) -- Biotech stocks are off to their best start in more than a decade, with the Nasdaq Biotechnology Index (NBI) soaring 17% since the start of 2012, trouncing broader stock indices. Investors are riding a wave of unprecedented optimism following what seems like an avalanche of deals, early drug approvals and positive clinical news that has kicked off the year.

Biotech bull markets are fun but they turn quickly into biotech bubbles when ebullient investors get cocky and start believing that these risky, volatile stocks only go up. It may seem like a distant memory but it was only last August when biotech stocks tanked and the sector was un-investable. Don't believe biotech stocks will ever fall again? Guess again, they will. They always do.

Evidence of a biotech bubble abounds. My Twitter stream is turning into a raucous party of self-congratulatory tweets from traders who fancy themselves biotech stock-picking geniuses. More telling: Valuations in some high-quality stocks are starting to defy logic while the sector's garbage stocks are propelled higher on a noxious fuel mix of momentum, speculation and ignorance.

On the following pages, I take a look at six biotech and drug stocks with valuations reaching unsustainable levels or that, for various reasons, don't deserve an invitation to the biotech bull market party at all.

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