BOSTON ( TheStreet) -- Let's open this week's Biotech Stock Mailbag with a discussion of bubbles. Scott B. emails:
Adam, I read and enjoyed David Sobek's article on biotech stock bubble but was wondering if you had an opinion, one way or the other?
Yes, we're in the midst of a biotech stock bubble.
No, we're not.Let me explain why I'm on the fence. We're not in a biotech stock bubble because the incredible performance and growth we're witnessing this year (and last year, too) is being driven by real, fundamental success. One buyside investor summed it up well for me this week: "Shit is actually working!" He's right. Biogen Idec's (BIIB) Tecfidera, Gilead Sciences' (GILD) hepatitis C drugs, Regeneron Pharma's (REGN) Eylea, Pharmacyclics' (PCYC) ibrutinib, the booming orphan drug launches led by Aegerion Pharma (AEGR), NPS Pharma (NPSP) and others. The biotech sector is developing more and better drugs than ever before, and as a result the fundamentals underlying the sector are stronger than ever. This is an undeniable fact and investors are acting accordingly, justifiably so. Big-cap biotech's collective price-to-earnings (P/E) ratio isn't even close to historical highs. A 15-year chart courtesy of ISI Group's Mark Schoenebaum: None of this means that some biotech stocks aren't overvalued. Sobek is right to differentiate between valuations that are stretched too far for select biotech stocks that are otherwise fundamentally strong and a true, irrational stock bubble. As he points out, strategic buyers of biotech assets -- Big Pharma -- seem to be recoiling at high prices. It's an important signal to watch for a possible correction. But then, fund flows into biotech are off the chart. Generalist investors love biotech stocks right now. This chart helps explain why: IBB data by YCharts
Schoenebaum meets with a lot of generalist investors. In a recent video sent to clients, he sums up their mood: Biotech sentiment is awesome. It's unbelievable right now. It's unlike, honestly, anything I've seen in my 13 years. I started in 2000 so I do remember the 2000
Or Celsion (CSLN): CLSN data by YCharts