Here's a different way of looking back at the amazing and crazy year in biotech investing coming to a close this week -- with perhaps something meaningful for investors to think about in 2014.
The number of biotech and drug stocks reaching a market capitalization of $1 billion or more during 2013 nearly doubled from the previous year.
Twenty-five drug and biotech stocks began 2013 with a market cap under $1 billion but exceeded and maintained that valuation threshold through last Friday, according to S&P CapitalIQ. [Check out the chart below.]
Acadia Pharmaceuticals (ACAD) tops this list, with a market cap that grew 729% in 2013 -- from $277 million to $2.3 billion.
By comparison, 13 companies crossed over the billion-dollar market cap hurdle in 2012.
About one-third of U.S.-listed drug and biotech companies sport market caps of $1 billion or more, so entering this semi-exclusive club is a meaningful achievement. That so many more biotech and drug companies were able to achieve $1 billion market caps illustrates the incredible amount of investment capital -- much of it from generalist investors -- which poured into the sector in 2013.
There's a downside to the rapid expansion of the "Billion-Dollar Biotech Market Cap Club" as well: It's been fueled mostly by speculative and momentum investing. More than ever before, investors are projecting future revenue and profits onto younger, development-stage biotech and drug companies with a lot yet to prove.
Acadia is a great example. Its current valuation already bakes in almost $1 billion in sales as a treatment for the psychosis related to Parkinson's disease and another $4 billion or so in sales for Alzheimer's related psychosis, according to the valuation analysis done by Zacks analyst Jason Napodano.