With the red-hot, and making new record highs every day, biotech index – which together with AAPL is the main driver behind the Nasdaq’s surge back over 5,000 – seemingly all anyone can talk about, we decided to layout the simple facts.
- Below is a chart of the 150 companies that make up the Nasdaq Biotech Index (NBI), broken down by Net Income.
- Of the 150 companies, in the last 12 months only 41 had earnings, i.e., Net Income, amounting to just under $31 billion
- Of this $31 billion in earnings, just 5 companies – Gilead, Amgen, Shire, Biogen and Celgene – had net income over $1 billion
- Just these 5 biotechs represented 83% of all the earnings generated in the NBI
- 109 companies in the NBI lost money in the last 12 months.
- In summary: only 41 companies in the index were profitable, which means 72.5% of biotechs lost money
- 83% of Biotech earnings were generated by just 12% of the companies
Visually this is shown as follows:
If one excludes the companies with a market cap under $1 billion, the layout remains largely the same: of the 87 biotech companies that fall in this category, 68% lost money. Once again the “big five” accounted for 84% of the entire industry’s Net Income.
So what does the market think? Well, adding across the entire NBI, the market cap is about $1.06 trillion. As for the Net Income, it was $21.1 billion in the LTM period.
In other words, the Nasdaq Biotech Index now trades with a P/E of 50x, with over 80% of the entire sectort’s earnings concentrated in just 5 companies.