Why have biotechs historically experienced boom-bust cycles?
Historically biotechs have been through four year boom-bust cycles. The advent of a new technology or biomedical breakthroughs captures the imagination of investors across the board. All of a sudden biotechnology becomes flavor of the month and prices begin to soar. With apparently unlimited potential in an area where most institutional investors struggle to understand the concepts, the roller coaster ride begins. Simply put, prices overshoot because too much money starts chasing too few stocks. Unlike the recent Internet craze where investors were offered alternative investment opportunities via a smorgasbord of Internet start-ups, this just isn’t possible in biotechnology. Biotech companies are generally founded on decades of experience and this expertise can’t be created over night. The resurgence in the sector just three months after the slump is a positive sign that biotechs may be here for good. But the supply problem coupled with a lack of technological understanding is unlikely
