And biotechnology companies have "massively outperformed" this year, whereas pharmaceutical firms have not, International Strategy & Investment analyst Mark Schoenebaum said in a research note. "Are we in a biotech bubble right now? The consensus view is yes, we are," Schoenebaum said, citing a recent informal survey of his clients. "But we're only in the second or third inning and have several quarters of good performance ahead of us."

The fundamentals of biotech look good. There's lots of growth and generally any licensing deal offers three to five years of future milestones. As long as productivity is up, there's no problem, Schoenebaum said.

After all, we're not talking tulips here. These firms generally have years of experience, both managerial and scientific, with solid hypotheses and some proof-of-concept data before they go public.

"There are window periods and often a period of high valuation coincides with a pretty robust stock market in general," Mendelson said.

"In life sciences M&A you usually have a couple of deep-pocketed suitors looking at a scarce asset. When that happens, yes, values can and do go up pretty high," said Dimitri Drone, of PricewaterhouseCoopers' life science practice.

Yet, in some circumstances, prices can rise too high, too fast. Onyx Pharmaceuticals Inc.'s ( ONXX) stock price skyrocketed by nearly 50%, from $89 to $136, after it rejected Amgen Inc.'s ( AMGN) $120 per share, $10 billion bid and then put itself up for sale. The higher price was enough to make Amgen and other deep-pocketed suitors rock back on their heels and ask for a closer look at what they might be buying. (A possible deal reportedly is still in the works.)

And just as negative macroevents can slow down action in a market, so can positive ones. Biotech has had several successes lately and those have raised the public's view of the industry. There are solid underlying reasons why the biotechnology industry is finally gaining interest from investors, Mendelson noted. The genomics revolution has had a major impact on how these firms analyze and develop their programs. Medicines are becoming more specific, and they're being developed based on genetic knowledge and manipulation. Those technologies have also made drug development more efficient.

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