Biotech Outperforms Pharmaceuticals

Historically, drug stocks are considered likely outperformers in a poor economic environment -- the logic being that people will continue to buy needed medicines at the expense of other non-essential purchases. Also, the companies generally have a steady cash flow. However, since the market bottom in November 2008, the Biotech sector (measured here by the AMEX Biotech Index BTK) has been strongly outperforming the Pharmaceutical sector (AMEX Pharmaceutical Index DRG). And this trend has only accelerated in February 2009 thus far.

BTK vs DRG Daily Performance Chart since Nov 2008


In the following chart you can see the 2009 performance of the two indices.

BTK vs DRG, 2009 Performance Chat

Here are the Top Components of each Index (from the amex.com website):

BTK Top Holdings

DRG Top Holdings

What is the reason for this outperformance? Well, it seems that "pipeline" is becoming everything when it comes to these sectors, and the Biotech companies are the ones providing much of the new potential drugs. In addition, the sector as a whole appears more stable than in the past, when it was much more of a risky growth type group. There also has been continued merger/takeover/partnership activity with key biotech names over the past several years.

Disclosure: None.