RussBritt

LOS ANGELES (MarketWatch) — Confused investors looking for advice on where biotechnology stocks are headed might get a clue from the head of one company in the sector.

Or not.

Rajesh C. Shrotriya, chairman and chief executive of Spectrum Pharmaceuticals SPPI, +1.76% says with conviction that a lot of biotech shares are overvalued because, simply put, they’ve been “selling a dream” instead of focusing on fundamentals. Shrotriya stops short of declaring the current state of affairs a “bubble,” though he understands why some investors see it that way.

“[It’s] about creating sizzle, about creating an air about something that is bigger than what it is,” said Shrotriya, whose own company has traded in the $7 to $11 range in the past year. “They’re trying to sell a dream.”

Meanwhile, David Thomas, director of industry research at the trade group Biotechnology Industry Organization, flatly states otherwise.

He says the price-to-earnings growth ratios on the sector’s biggest stocks are less than one third of where they normally would be when shares are spiking.

“Based on a simple metric like that, we’re nowhere near bubble territory,” Thomas said.

Welcome to today’s confusing, ulcer-inducing world of biotechnology investing.

Investors are doing all they can to maintain their equilibrium in an industry notorious of late for its thrill-a-minute trading sessions. Wild fluctuations in equities are leaving investors groping for air-sickness bags.

Companies like Pharmacyclics Inc. PCYC, +0.06% which jumped nearly 20% in one day in early January, climbed a cumulative 50% during the two months that followed and then plummeted back to pre-spike levels within six weeks. The market was agog over a test on a leukemia drug that was halted early because the company had already met all its goals.

Dizzy yet? If not, take a look at Intercept Pharmaceuticals Inc. ICPT, -0.43% which catapulted from just above $70 to more than $400 around the same time over a two-day period. Intercept, too, halted tests on a liver drug that met all its goals early.

Intercept has fluctuated between the $300 and $500 level since then but unlike Pharmacyclics, it has kept its high-wire act running.

Even exchange-traded funds and mutual funds – usually the picture of stability – are navigating dizzying heights and white-knuckle dips on a daily basis.

It’s almost impossible to find stability in the biotech sector, and that task is made more difficult without a viable roadmap. So the question remains, should investors go along for the ride, or get out at the next stop? Is the latest drop in the sector the sound of a bubble popping, or a little air being let out before the sector goes on another run?

Undoubtedly, the squeamish have got to be at least eyeing the exits after the last few weeks. The Nasdaq Biotechnology Index NB NBI, +0.62% has dropped 17% since hitting a peak in late February, and 14% in the last three weeks alone.

A look at that chart, though, as well as those of the NYSE Arca Biotechnology Index BTK, +0.65% which includes a slew of biotech-heavy ETFs and mutual funds, and just about any viable biotechnology company out there all show the same thing.

Biotech usually isn’t the picture of sustained, stable growth, but it’s been a top performer along with information technology the last few years.

Prior to 2014, biotech stocks grew steadily, mounting a sustained rally since the recession’s downturn. Since the beginning of this year, however, these charts all show a noticeable formation on the right side in which stocks and funds shot up quickly, remained aloft for roughly two months, and then plopped back to a shade above pre-2014 levels.