With the biotech sector down 45% this year, investors are beginning to act downright loopy. So it doesn't take much at all -- even a false rumor -- to start a stampede of sellers.

That's what happened Tuesday morning to

Idec Pharmaceuticals

(IDPH)

, when an innocuous comment from a sell-side analyst during his morning conference call was turned on its head, precipitating a remarkable burst of panic selling.

In the first few minutes of trading, Idec shares plunged 36% off their Monday close of $32.60 on more than a day's worth of volume. The stock fell to $20.76 before sharply rebounding, almost as fast. Idec was down 23 cents, or less than 1%, to $32.35 in recent trading.

Again, blame the crazy activity on stressed-out investors who seem to be in no mood to ask questions before they run for the exits. Throw in some stop-loss orders and an already illiquid, pre-July Fourth market, and you've got all the fixings for one crazy morning in biotech land.

The call that got it all started originated at the desk of J.P. Morgan analyst David Molowa, who issued a short research note this morning on the prospects for

Genentech's

(DNA)

second quarter. While addressing his firm's sales force, Molowa reportedly brought up the fact that Genentech and partner Idec were developing their blockbuster cancer drug Rituxan as a potential new treatment for rheumatoid arthritis (a topic

discussed previously by

TheStreet.com

.) Molowa also mentioned that because of this new testing program, Idec was likely to drop development of another experimental drug, Idec-151, for rheumatoid arthritis.

Here's where the trouble started. Rather quickly, word spread -- erroneously -- to trading desks around Wall Street that Genentech and Idec were halting testing of Rituxan as a new rheumatoid arthritis treatment. Boom! Let the mass selling begin.

"I had just come out of a morning meeting and all of a sudden, my phone and IM

instant messages just lit up," said one biotech trader. "It was ridiculous, just goes to show you how bad this market really is."

Genentech wasn't spared from the selling, although the impact was blunted because of the company's more diverse product pipeline. Genentech shares dropped as much as 8% before also rebounding. The stock was down $1.60, or 5%, to $30.68 in recent trading.

And of course, the Amex Biotechnology Index was taken down too, falling 5% early to 306.80 -- this on top of Monday's 7% plunge. The index has since risen slightly and is now down about 2.5%.

Idec spokesman Vince Reardon confirms that the company and its partner, Genentech, are not -- repeat, not -- dropping plans to test Rituxan as a potential new treatment for rheumatoid arthritis. And despite what Molowa really said earlier today, Idec has not made up its mind on Idec-151 either.

"What we've said in the past is that we won't pursue development of two drugs for the same indication, but that doesn't mean we won't investigate Idec-151 in another indication," Reardon said.

Unfortunately for Idec shareholders, that message was lost this morning in the cacophony of investors trying to sell first and ask questions later.