A report accompanying Federal Reserve Chairman Janet Yellen's Congressional testimony in July warned that valuations of biotech firms are "substantially stretched." Some experts say she's got it all wrong.
"If you are a sophisticated biotech investor, a lot of these guys, the Wellingtons, T. Rowes, Fidelitys — these guys are incredibly sophisticated," Asher Rubin, at partner and co-head of the Life Sciences Industry team at the law firm Hogan Lovells, tells
Fortune. "They know what they’re looking at overall."
While the S&P 500 index has increased 5.1 percent since January, the S&P biotechnology index has jumped 13.6 percent. Biotech and pharmaceutical firms had 53 initial public offerings this year.
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Biotech stocks can certainly be risky. Many are not making money and are working on unproven drugs that lack regulatory approval.
However, the drugmakers now have better data on the drugs in development than in the past, a game changer for biotech investors, according to Fortune.
Kite Pharmaceuticals raised $146.6 million in its June IPO, exceeding its $115 million goal. Its stock skyrocketed approximately 24 percent, based on its CAR-T drug that's designed to attack cancer tumors.
Comparing results from different companies is key for predicting a drug's odds for successes. Although the drug has been in development since the early 1990s, testing of the drug by Kite and similar drugs of other biotech firms, including Novartis and Juno Therapeutics, now shows investors the drugs can work and may reach the market, Fortune reports.
While the new firms are often seeking IPOs to gain funding, mergers and acquisitions will become more popular as FDA approval becomes more likely.
"As these smaller companies progress, they will strike licensing and collaboration deals," Rubin tell Fortune. "We’ll probably see big pharma reap the rewards of what the small biotechs have been doing."
Other experts believe Yellen's warning about small social media firms being overvalued was also off the mark. After her warning,
CNBC reports, social media firms announced second-quarter earnings that generally beat expectations.
Cantor Fitzgerald web analyst Youssef Squali tells CNBC that 84 percent of Internet companies reporting second-quarter results beat revenue forecasts.
Still, many agree with Yellen.
"It feels a little bit in some of the markets, like social media and the cloud area, a little bit like the bubble 10 years, 15 years ago," Oracle Chairman Jeffrey Henley tells CNBC.
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