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Local biotechs hurt by market selloff

Long-galloping biotechnology shares stumbled this week, falling harder than the broader financial markets as stock watchers cited a move away from riskier investments.

As stock prices plummeted, four US biotech startups, including Aldeyra Therapeutics of Burlington, delayed initial public offerings planned for late this week. Aldeyra, which is developing treatments for rare skin and eye diseases, would have been the eighth Massachusetts biotech to go public so far this year after nine completed IPOs in 2013.

The benchmark Nasdaq Biotechnology index plunged 2.8 percent to 2,251.53 Friday, ending the week down nearly 4.5 percent in one of the worst weeks for the sizzling sector since the summer of 2011. The selloff left the biotech index in unfamiliar bear market territory — it has now dropped more than 21 percent from its late February peak.

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Some high-profile Massachusetts biotechs joined in the rout Friday, with losses of 6.2 percent for Cubist Pharmaceuticals of Lexington, 4.9 percent for Alnylam Pharmaceuticals of Cambridge, 4.6 percent for Biogen Idec of Cambridge, 4.5 percent for Ironwood Pharmaceuticals of Cambridge, and 4 percent for Vertex Pharmaceuticals of Boston.

A pair of smaller biotechs suffered even bigger losses. Dicerna Pharmaceuticals of Watertown retreated 7.9 percent, while RXi Pharmaceuticals of Westborough dropped 6.6 percent.

“There’s a fundamental change in the investor mood,” said John Dorfman, chairman of Boston investment firm Thunderstorm Capital. “Investors are now in a sober mood, less willing to pay up now for future success. This is a shift in psychology from growth stocks to value stocks. It will be at least six months, and possibly more, until the animal spirits come back.”

Market analysts said the selloff did not come as a surprise, though the specific catalyst was unclear. In a given year, they noted, there are typically three dips of 5 percent or more in the broader markets and at least one decline of 10 percent or more. But not a single such decline has taken place during the past two and a half years, they said.

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“To me, this has all the feeling of a pullback, not a market collapse,” said Jim Swanson, chief investment strategist for financial firm MFS Investment Management in Boston. “The momentum names in this particular episode — and this includes a lot of the biotechs and some of the high-flying tech companies — were hit the most. But this isn’t the deflating of a broad-based bubble. This business cycle is still going, and it’s getting stronger.”

Ironically, the spotlight on the biotechnology IPO boom may have created the undeserved impression of an industry bubble, some market watchers suggested. Those companies seeking to go public this week may have paid the price for that impression.

Cerulean Pharma of Cambridge, the most recent Massachusetts biotech IPO, raised $60 million Wednesday to develop liver and ovarian cancer therapies. But the company priced its shares at $7, a significant discount from an earlier planned range of $10 to $12 a share. Cerulean’s stock closed Friday at $6.85 a share.

“We’re overdue for something like this,” said Jim Weiss, president of Weiss Capital Management, an investment firm in Concord.

“It’s hard to get 40 to 60 percent moves up over the past 18 months without seeing something like this. On the fundamentals of biotech, these are real companies and they have real patent-protected solutions to medical maladies. But they’re also risky. Many don’t have the legacy or the track record of profits of a Pfizer or a Merck.”

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Weiss said that he detects a “biotech fatigue” among investors, partly because of the IPO boom. Once the fatigue ends, he said, “I see this as a developing buying opportunity. But you’ve got to pick the right ones.”


Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.