Investor panic could spell tougher times for biotechs

The big message delivered from yesterday's stock market rout was simple: shun risk. Flee to safety. And that kind of investment recipe does not benefit an industry like biotechnology.

For biotechs, for whom red ink and high risk are staples of any business plan, it likely meant even less of an appetite for IPOs, which can only make raising fresh funds harder. Biotech IPOs haven't exactly been met with great enthusiasm this year, but going public has at least been an option for some. For biotech companies that are already public, the pain triggered by investor panic was spread far and wide.

The Nasdaq Biotech Index has plunged by almost a quarter in the past few weeks. That was in line with the 22% drop in the Massachusetts biotech index tracked by the Boston Globe. The Amex ^BTK has melted from 1340 to 1068--yesterday's close--in just 7 short days. So where the Dow was badly mauled, biotechs were being bludgeoned.

Big Pharma companies, which like many multinationals have long been cautious in the wake of the 2008 financial crisis, have been hoarding huge reserves of cash. According to the Star-Ledger, Johnson & Johnson is sitting on $3 billion in cash. Merck has $1 billion in cash on the books.

There is a silver lining to the black cloud over Wall Street. A turnaround could push Big Pharmas to spend more of their reserves on new drug deals. And investors looking for bargains could well turn to the biotech sector once the angst has died down a bit. Things were also starting to look up this morning as the Dow jumped more than 200 points and the battered ^BTK surged 3%.

- read the story from the Boston Globe
- here's the report from the Star-Ledger