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Biotech: The other bubble
Amazon and eBay are stealing the headlines, but biotech is where most speculation has been going on.
May 28, 2003: 4:06 PM EDT
By Adam Lashinsky, CNN/Money Contributing Columnist

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NEW YORK (CNN/Money) - Biotech is back: The Nasdaq biotech index is up 35 percent this year, and a number of smaller companies in the field have doubled and tripled.

Like the recent reflation of the (surviving) dot-coms, it's nearly impossible to predict when biotech will blow up.

But as night follows day, bubbles burst. Learn your lesson from the last go 'round: Don't be greedy.

There's a difference, of course, between the biotech stocks (especially "genomics" companies that are turning knowledge of DNA into targeted drugs that can solve specific diseases) and the Internet stocks of yesteryear.

As I note in the current issue of Fortune on the particularly large jump in one biotech stock, Genentech (DNA: Research, Estimates), biotech companies really are changing the world.

Cures for cancer beats selling dog food online any day.

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Another legitimate reason for the latest spike in biotech stocks is merger activity. The big, slow pharmaceutical companies and even the more mature biotechs are looking to expand their pipelines, which should lead to soaring prices for the smallest biotechs.

That'll happen both for speculative reasons and because of actual transactions. Last week, for example, no sooner did Morgan Stanley downgrade the entire biotech sector on valuation concerns than Amgen (AMGN: Research, Estimates) announced it would buy a stake in Tularik (TLRK: Research, Estimates), a smaller drug-development concern. Tularik's shares are up 50 percent since then.

What's the problem?

Okay, so if so much good stuff's going on where's the evidence of the bubble? The evidence lies in the stocks of companies that are years away from actually getting their therapies past the FDA and to the market.

A perfect example is Sirna Therapeutics (RNAI: Research, Estimates), an early-stage company that's working on so-called "targeted drugs." Sirna has benefited from a spate of high-profile articles trumpeting its work. It also raised $48 million from venture capitalists in April, even though it's already a public company.

The catch is that the VCs paid $1.98 a share and hold warrants to exchange for stock at $2.52. Sirna's shares currently trade for more than $7.50, up from a 52-week low of $1.20.

If you're sitting on a 7-bagger, do you really think it's prudent to not take a little something off the table? Because that's the lesson you ought to have learned from the last raucous party. It's been a great year. Don't ruin it by not cashing in a little.

Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at

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