There are real products. The Food and Drug Administration is expected to approve 35 biotech drugs this year - nearly twice the number OK'd in the '80s, says Steve Valiquette, analyst at Warburg Dillon Read. He says an additional 350 drugs are in the pipeline. Emerging stock sectors, whether Internet or biotech, tend to trade as a group at first. That quickly changes after the first bout of heavy selling.
Investors watch for the subgroups that recover best.
Stick with profitable biotechs. Unless you're a biotech scientist, stick with the moneymakers, says Paul Abel, co-manager of Kinetics Medical Fund. Companies such as Idec Pharmaceuticals are generating cash from products such as cancer-fighting Zevalin, Abel says. Beware of biotech companies with large patent risks. Pressure is being exerted on the U.S. Patent and Trademark Office to tighten its gene-patenting rules.