Biotech turning into "dotcoms"?

Remember the time when there was a dotcom boom and this was soon followed by this bubble bursting. In fact any sector which now zooms up like the dotcoms is now warned – beware, it might be a dotcom boom and bust!

And the Nasdaq investors are looking with worry at the biotechnology sector. The Nasdaq Biotech Index is up about 240% since the beginning of 2012 and that is nothing compared to the 82% gain logged by the Nasdaq-100 tech index of the largest technology companies listed on the Nasdaq.

These are companies which develop medicines using living cells and not chemicals and the big similarity with the dotcom companies is that these are mostly initiated by start-ups. The market is looking at these stocks anew, not due to the potential of its medicines but because they are prime acquisition targets for larger MNC, pharma companies. They are also showing some great earnings and FDA approvals, which acts as a further magnet for investors.

But these stocks are viewed as high-risk, high-return, another parallel of the dotcom companies. They are viewed more as a gamble as their success hinges only on FDA approvals and funding. And both these variables are extremely volatile. Many say that biotech firms have now entered the “bubble” zone on the Nasdaq and it is probably the low interest rate which has turned out reckless investors. So once rates start going up and economy improves, these very stocks will be dropped like hot potatoes. Many say that insiders, who had applied during the IPO are actually whipping up this frenzy to get themselves an exit route.

What this indicates is that basically all investors around the world are exactly the same – it is greed which is the prime most character which drives such a need.