Matthew Herper at Forbes argues that the biotech boom of the past two years has been spurred by new drug launches and research breakthroughs. However, he cautions that some investors are currently "seeing rainbows and missing the rain."
For instance, Herper says that investors seem to be missing that the decline in R&D hasn't subsided and that the amount of money spent per drug is increasing. A number of recent successes, he notes, have been derivative drugs based on known approaches or therapeutics.
Additionally, he says that some investors are erroneously thinking that the US Food and Drug Administration has become friendlier to companies. While the "breakthrough" designation for some drugs has made it easier to navigate FDA waters, Herper says "FDA still makes most of its decisions based on the same conservative science it always has."
And then there's the money. Pricing power may not last forever, but Herper says that in the US, companies and still command high prices.
"There are always going to be good biotech stocks to pick, even in the worst market," he says, but he later adds that "investors should avoid thinking that the drug business has undergone a fundamental change in the past few years. It hasn't.