Biotech Values

[frontiers]

Well written article on the Fed's comments on biotech valuations...

http://finance.yahoo.com/news/federal-playing-analyst-damaging-biotechnology-140000055.html

here's an excerpt ...

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The dustup prompted a Forbes writer to reprint one market figure's open letter to Fed Chair Yellen. The letter, sent to clients by Mark Schoenebaum, lead health care analyst at International Strategy & Investment Group, quietly but firmly takes the Fed to task for- at best- misinterpreting data, saying, in part, "I just gathered biotech price to earnings ratios back to 1993 using Russell 1000 data, and my data show that the current ratio is roughly in-line with the historical median and is approximately 80% below the peak. Please tell me what I’m missing, Dr. Yellen."

A Wall Street Journal headline blared, "What Yellen Did to the Markets, in Three Charts". Online Barron's called the Fed statement an "unusual dropkick to two stock-market sectors..." Further, wrote Barron's Brendan Conway, "Sounds like the monetary-policy equivalent of terrorist-whacking drones in place of full-scale invasions. Is that a good idea? You can’t blame biotech investors, especially, for feeling bruised."

Conway was explaining, or trying to explain, new Fed strategy, which he said was an oblique way of avoiding Fed policy tightening, i.e., by targeting specific market sectors. However targeting entire sectors without providing a corresponding analytical rationale that might also enable some discrimination at the individual company level seems like an ill-considered gesture.

Achillion Pharmaceuticals had seen shares tear ahead in June with the FDA lifting a clinical hold on its study of experimental hepatitis C drug sovaprevir and speculation the company may be an acquisition target. Momentum looked to be building again after the run, but was hamstringed for a loss of nearly 11 percent the week of the Fed comments. Was Achillion’s valuation "stretched" with an $800 million spike? That’s a tough question. Maybe the central bank has more insight on what a new hep C treatment is worth.
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Hopefully we won't hear any more yellin' about biotech valuations any more ...