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Dismal science

The only thing anyone cares about now - and not just in biotech - is when the markets will turn around.

Taking as a given that the markets will recover eventually, there are two basic paradigms about the timing of a shift in sentiment for biotech. The cheery school of thought is that there has been a string of bad product news, and sentiment will turn once there is a string of good product news.

The gloomy school posits that we are in a long-term, or secular, bear market, and until out-of-whack stock prices and P/Es are washed out of the system, there will be no upward swing.

Last week may have provided a respite, with a spate of good earnings news from the biotech group on top of a bounce in the overall market. But if history is any guide, the gloomy school still may have the more persuasive argument right now, as none of the logical precursor events is yet in place for the sector to hit bottom.

Of course, history and logic may not prevail, especially if the markets notice that the big cap biotechs are one of the few groups that delivered on earnings last quarter, with a spurt of other companies about to get products on the market in the U.S. and Europe.

Thus the intangibles and wildcards also must play out. These include the investor psychology behind the (flawed) perception that biotech has largely failed to deliver on product and regulatory news so far this year.

At the same time, it will be open season for bashing drug prices in the fall election campaign, which can only add a political pall to the now prevailing sentiment that the regulatory picture will continue to be abysmal in the absence of leadership at the FDA.

In any case, the current dynamic suggests that there is even more time to wait for the opening of an offerings window, which has been late to the party in the last two biotech rebounds.

The precursors

Based on the prior two major biotech bear markets, three events probably need to precede a

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