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Minyan Mailbag: Biotech's Bottom

By non-advice forecast is that the BBH underperforms the IBB the rest of the year but both grind it out for the next 6-8 weeks within a range


Professor Miller,

Biotechs have been trying to bottom for several months now...maybe a break over 180 would be another indicator of where the Fed is headed (cash flows way in the future are more sensitive to rates)?

Biotechs aren't really my game, but the below chart did catch my attention...any thoughts?

Professor Adam Michael

Prof. Michael,

Finger in the air and hand-to-heart, my non-advice forecast is that the BBH underperforms the IBB the rest of the year but both grind it out for the next 6-8 weeks within a range. Take the temp again of the macro market (Is Ben really stopping?) at that point and I'll tell you how strong any year-end rally will be. That BBH chart looks for all the world like it's going to coil itself into a pennant and the IBB chart looks like what I used to call "airy" (not a good thing, but not shortable).

Fundamental wild cards (signposts a bullish bounce would come early in the seasonal cycle) are a redirection of the pharma money spigot to public companies, FASB placing its new acquisition accounting rules into effect in mid-2007 instead of December 2007 and a string of clinical and regulatory successes from the August/September trial data.

The risk side is even more trial and regulatory failures, but mostly macro issues like Bernanke, geopolitics, liquidity suckage, etc.

I'm still on the fence about what the mid-term elections mean for biotech, but I suspect Wall Street will make up its mind about that before too far into September. Of all the biotechs that come to mind, Genentech (DNA) has the biggest political risk as they are making many enemies due to the aggressive pricing of Lucentis and Avastin (one reason why I like IBB more than BBH).

Hope that helps...
Prof. Miller
No positions in stocks mentioned.

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