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Beware of biotech

Even after the dot com bubble burst, US investors continued to snap up the IPOs of another group of companies characterized by non-existent profits and total dependence on unproven new technology. Now many investors are regretting their enthusiasm for healthcare and biotech stocks.

       
Pablo Halpern, vice-president of
Given Imaging, displays its
ingestible cameras

Is there a dot com-style bubble in the making for biotechnology companies? Some would say no. Valuations are way down from the heady days of the tech and internet boom and these companies are run by serious scientists more mature than the twenty-something would-be millionaires who set up all those now-defunct dot coms.


However, judging by recent volatile stock price movements and the financials of some of those companies looking to raise equity capital this year, it's not such a stupid question. Even some of the bankers on syndicate desks are starting to wonder about what they are selling. "Why would anyone buy these companies," says one equity syndicate banker, leafing through a selection of prospectuses for biotech companies. "They've little or no revenues, one big idea, and large operating losses. Are we going to do what we did in the tech boom and just pass them on to retail?"


There have been several cases already this year highlighting the pitfalls of investing in these small biotechs.



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