Even the best fundamentals may not be able to overcome the negative effects of the broader economy on the stock market this quarter. As a result, specialists have little hope of major gains and instead are using price weakness to strengthen portfolios.
Some are focusing mainly on clinical milestones, given the unpredictability of the launch landscape. But others are picking over beaten-up launch stories even though they expect generalist investors will think twice about plunging back into biotech after the thrashing they took in new commercialization stories like Dendreon Corp.
No market cap segment was spared last quarter, as the sector was hit by a slew of macroeconomic and fundamental issues that seem unlikely to go away near term. Deficit-cutting in the U.S. and European austerity measures weighed on the large caps; mid-caps got burned with the launch debacle for Dendreon's Provenge prostate cancer treatment; and small caps suffered from worries about undercapitalization and the broader flight from risk.
The NASDAQ Biotechnology Index (NBI) fell 13% in 3Q, while the BioCentury 100 lost 17% and the NYSE Arca Biotechnology Index (BTK) shed 25%. Among the broader market benchmarks, the NASDAQ dropped 13%, while the Dow Jones Industrial Average and S&P 500 were down 12% and 14%, respectively (see "Few Cinderellas," A15).
The Chicago Board Options Exchange Volatility Index (VIX) hit a high of 48 in early August and ended the quarter at 43. That's nowhere near mid-teen lows in 1H11.
Only $2.8 billion was raised by public biotechs last quarter, with $1.8 billion - almost two-thirds - coming from debt. 3Q was smallest public fundraising quarter since the meltdown of 4Q08, when only $719 million was raised.
Still, so much money was raised in 1H11 that the total for the year is already $23.4 billion. That's compared to $30.7 billion in 2010, which was the largest public financing year since 2000.
Biotech specialists surveyed by BioCentury are doing the best they can to control their losses while selectively picking up bargains. None of them are convinced the market has hit bottom. As a result, they expect to continue to cost-average by buying into the downside of the market slide.
Some are opting to invest in front of Phase II and III milestones, viewing them as largely sheltered from the taint of