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2Q Financial Markets Review: Hard decisions loom

The biotech selloff has contracted multiples for profitable companies and lowered technology values for development stage companies. While the former will survive - and even trade up if a multiple expansion occurs - there are many more unknowns in the latter group.

With little value being accorded future products, many companies in the group are trading at or near cash. And since these companies are burning cash, that number has nowhere to go but down. With no offerings window in sight, there is a growing number of companies with less than a year or two of cash.

The good news is that most buysiders say the development stage biotechs are getting unfairly stung, and will rebound when the market corrects. With the profitable companies getting tagged, too, the data point to systemic selling, suggesting that the market hasn't quite gotten the temperature right for the porridge.

"It feels pretty overdone for biotech right now," said biotech hedge fund manager Tim Bepler. "Idec is down close to $30 and there are cheap P/Es for most of the product companies that are making them look really attractive." The average trailing 12-month P/E for the top biotech companies has fallen to 32 from the 49 multiple at which they started the year.

"It's more a market event than anything else," said Bepler. "It's a risk-averse time and the time horizon has shrunk from two to three years out to justify today's value to now looking one to two quarters out,

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