It seems little more than a memory now, but for a moment earlier this year, biotech stocks were cooler than even those swinging tech stocks like
Investors were filled with the kind of hope and promise that the biotech companies themselves live on each day. Even people who knew little about what the companies do (read momentum investors) jumped onboard. So
soared 294% from late October to early March, while
added a more modest 196%. Even lesser-known companies like
ran along with the big dogs. It was up 279%. The
Nasdaq Biotech Index
was up 166%.
And then, just like that, it all came apart.
Fingers were pointed at
and British Prime Minister
because in mid-March, they seemed to back free access to genetic data that genomic companies wanted to sell. At the same time, some reality set in as worries replaced hope about drugs in the biotech pipeline.
Millennium, for instance, is 60% off its early March high. The Nasdaq Biotech Index has fallen more than 40% since then.
Now, investors are back to looking for biotechs with real promise, not just hope.
, widely considered a solid biotech, is off 13% since early March, possibly indicating that investors are beginning to be more particular.
Just What the Doctor Ordered
But as the biotechs dropped, in fact, as the tech sector fell, the drug stocks climbed, thanks to investors looking for companies with fat, predictable earnings.
Their gains were driven in part by the expectation and delivery of mostly double-digit first-quarter earnings for companies including
Johnson & Johnson
Since biotechs started heading down in early March, American Home is up about 26%, Pfizer has gained roughly 33%, Johnson & Johnson is up about 17% and Lilly has climbed about 32%.
But investors aren't buying just any drug stock, as they seemed to do with the biotechs. A regulatory setback Wednesday from
, involving its potential blockbuster hypertension drug
, sent its shares down 15, to 50 1/8, or 23%. It closed Thursday at 50.
There's also the specter of government price controls as Congress seeks to stem the rise in drug prices for the elderly. But for now, there is much more enthusiasm for hot-selling drugs.
The soon-to-be wed Pfizer and
, for instance, were awash in investor enthusiasm, thanks mainly to the success of
, the blockbuster lipid-lowering drug they sell. Pfizer's first quarter earnings grew 33%, while Warner's climbed 35%.