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Diagnosing the biotech breakdown

Tuesday, Mar 25, 2014 - 02:34

Mar 25 - Biotechs are taking a beating, falling back from the sector's 250 percent five-year gain, as investors cash in, and look for the next big momentum play. Bobbi Rebell reports.

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Biotechs have been taking a beating- losing their huge momentum in the last week- after gains of more than 250 percent in the last five years. One of the triggers of the sell-off: lawmakers' questions about Gilead Science's pricing of its new Hepatitis C drug- it's been getting pushback from insurers. Questions about price panicked investors, and now the bubble is bursting says Josh Brown, CEO of Ritholtz Wealth Management. SOUNDBITE: JOSH BROWN, CEO, RITHOLTZ WEALTH MANAGEMENT (ENGLISH) SAYING: "You can't argue that it's not a bubble. The only argument is how severe is it, and what is going to be the fallout. And to those questions I would say it's not quite as severe as we have seen in past eras, so I guess that is good news." Brown points out the sector has good things going for it- time to market for biotech drugs is getting shorter thanks to new technology. And getting drugs approved by the FDA is speeding up. Not to mention an aging population- pretty much guaranteeing demand for products. But that doesn't mean the price is right. Cumberland Advisors' Chairman and Chief Investment Officer- David Kotok cashed out a few months ago: SOUNDBITE: DAVID KOTOK, CHAIRMAN AND CHIEF INVESTMENT OFFICER, CUMBERLAND ADVISORS (ENGLISH) SAYING: "We owned biotechs for the last year. Had a wonderful ride. We sold them because valuations got stretched. So the underlying story is terrific. I mean, more and more people are going to get older and older. There are going to be more and more attempts to heal, postpone death, make people feel better, take the sick and make them well. Biotech is a great growth story. But how far do you take stocks before they need a rest and a correction? So we are in a biotech correction." Brown agrees biotechs just got too expensive- and says too many companies went public that simply weren't ready. SOUNDBITE: JOSH BROWN, CEO, RITHOLTZ WEALTH MANAGEMENT (ENGLISH) SAYING: "The science is less important. The fact that you've got some kind of compound under a microscope, and hey, it's a company and you know huge addressable market you can go public." Kotok says there are better places to put his money - for now. But will get back in when the time is right. SOUNDBITE: DAVID KOTOK, CHAIRMAN AND CHIEF INVESTMENT OFFICER, CUMBERLAND ADVISORS (ENGLISH) SAYING: "You let the correction run its course. That is how you avoid catching the falling knife. I never want to buy at the bottom. I want to buy after the bottom on the way up in the next run. That hasn't happened yet, so let's induce some fear. Let's correct some prices. Let people start to question what to do. Then there is a re-entry time." In the meantime, he's focusing his energy, on the energy sector.

Diagnosing the biotech breakdown

Tuesday, Mar 25, 2014 - 02:34

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