Biotech stages a "strong comeback" Part I

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Unlike previous downturns, health care and biotech have underperformed this year relative to previous bust cycles. However, this near-term trend looks as though it may be reversing.

Institutional money has been flowing into the biotechnology sector. Both Nasdaq’s and Amex’s biotech indices are up 5.7% year-to-date, while the S&P 500 is down 11.4% year-to-date. According to Prophet.net the industry moved up to a ranking of 14 over the last 6 months, up 27 slots, or 18.05%, from a ranking of 41. Over the last month it’s now ranked eighth overall.

“Biotech has definitely been hurt by the general market, but recently we have seen a strong comeback,” said Dr. Fariba Ghodsian, chief investment officer of DAFNA Capital, which invests exclusively in biotechnology stocks. “Part of it is as the census moved against the market, but part of it is fundamentally.” 

Ghodsian says biotechnology is one of the next hot sectors after we emerge from this downturn. “With different fields in biotech experiencing exciting new developments — from inflammation to cardiovascular to hepatitis C — it clearly offers a lot to improve treatment of diseases and I think it is being recognized in the marketplace,” she said. Ghodsian suspects we may see some of these strides in the companies and therefore the sector this year, but even more so in 2009.

Several recent trends that have characterized the biotechnology space have made Ghodsian very positive on the sector. For one thing, in recent months there have been an unprecedented number of acquisitions across the spectrum by both foreign and U.S. companies, partly because of the weak dollar.

Additionally, large pharmaceutical companies are suffering from very anemic pipelines and their major presence is expiring in the coming years, as patents run out. “Biotech is the natural place for them to look for opportunities to bolster their . . .

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