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Why the Biotech Boom Isn't Over

Written By Brian Hicks

Posted October 11, 2013

Many biotech stocks declined Wednesday, and investors began to wonder if the big biotech boom was coming to an end.

The good news is that it’s not over yet. The better news is that it’s actually just taking a break before it revs up for a boost.

biotech labThe Big Slump that Worries Investors

Biotech companies’ gains have slowed after they experienced a rapid increase over the last year. Vertex Pharmaceuticals (NASDAQ: VRTX) more than 76 percent for the year last Friday, but this week it lost nearly 6 percent. And it’s not the only one. Many biotech stocks experienced the same types of declines.

Investors have been celebrating the biotech industry for months, but now they are starting to back out with major sell offs. Why?

It mostly has to do with the government shutdown. With the uncertainty of the government, investors tend to sell off volatile stocks to start securing their portfolios with lower risk investments. But it’s important to note that the decrease in biotechs is a result of investors’ worries, not the end of the biotech boom. Actually, it may just be the start of a huge bubble.

Don’t panic at the word bubble. A bubble is not always a bad thing. In fact, it can be a very good thing for investors because it means that stocks increase in value significantly. As our own Brian Hicks points out, the only time bubbles are bad is when they burst, and the biotech industry isn’t projected to burst at all.

The Growth of the Biotech Industry

The biotech industry is going to continue to grow at incredible rates. Once the government reopens, all of the investors who were scared will start to buy back their stocks. This will drive prices up a bit.

The other factor that will drive prices up – and keep them there – is the baby boomer generation. Baby boomers first began applying for Social Security benefits in 2008, and now about 10,000 of them enter retirement every day.

The aging population needs medications for medical conditions. These medications come from biotech companies. The more baby boomers enter retirement, the more drugs will be needed.

Investors should keep their eyes on advancements in the industry. Drug research company Gilead Sciences (NASDAQ: GILD), for example, announced on Wednesday that it just ended its clinical study on a leukemia drug called idelalisib. The drug prolonged cancer patients’ lives by stopping the progression of the disease, Barron’s reports.

This advancement comes after the company experienced a huge gain on the S&P 500 index because of its hepatitis C drugs, though it too suffered a decline most likely due to investors’ worries over the government shutdown. On Wednesday, the company slumped to $59 a share – a decline of 6% in just two days.

But what happened after the announcement about the leukemia drug shows biotech’s boom isn’t done. On Thursday, investors were buying back in, raising the stock 6% to $62.38. Today the stock is up 67% year to date.

This is a prime example of how the biotech sector is just getting ready to make more great strides in drug advancements. Some of the other advancements include:

  • Organically grown vaccines, also called synthetic vaccines, as a safer alternative

  • Genetic sequencing at a lower cost

  • Individualized cancer treatments in which patients receive customized medication based on their DNA

  • Better data collection on patients

  • Blood vessel growth to replace arteries during cardiac bypass surgeries

  • Growing organs in the lab, so when someone needs one he or she doesn’t need to wait for a donor

Biotech companies are innovative and on the path to doing amazing things in the industry. This is what makes this time perfect for biotech investments. The industry is sinking right now because the government shutdown has caused investors to sell – not because companies aren’t making money. Which means this sell-off opens the door for you to buy on the dip.

As you get ready to invest, consider some of the biotech majors. Berstein Research’s Geoffrey Porges told Barron’s that Celgene (NASDAQ: CELG), Amgen (NASDAQ: AMGN), and already mentioned Gilead may do well in the coming months.

Do your own due diligence to check on what companies have in the works. It will help you gauge how fast new projects are moving and what that means for future growth.


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