Take one look at some of the huge moves in the biotech group lately, and many investors assume that it is pure insanity. Not Jim Cramer! In fact, these moves make complete sense to him.
"They're not crazy because, for whatever reason, the older line pharmaceutical companies seem congenitally incapable of developing huge new drugs, while these younger companies seem to do it as a matter of course," the "Mad Money" host said.
This week had many examples of the little biotechs winning over the big dogs. Some may say that Regeneron had a "bad" FDA panel discussion on its new anti-cholesterol formulation, and that is why the stock is down to $500 from $540 in the past week.
However, Cramer noted that this drug could actually end up being worth billions as testing showed that Regeneron has taken a unique approach to traditional statins that are used for cholesterol management, not to mention a way to help patients who are unable to take statins.
But let's also remember that Pfizer created the best-selling statin of all time, Lipitor. Merck even invented a whole class of statins. Yet, neither of these giant biotechs came up with this alternative solution.
"It's little Regeneron that's in the lead and when you think of it like that, you know this biotech rally makes sense," Cramer said.
Or how about Gilead? Remember when Gilead's stock was at a standstill because investors were worried about how much it was charging for its Hepatitis C cure and were convinced that more business would be sent to AbbVie for its more inferior formulation?
Well, in the past month and a half Gilead has gone to $119 from $100, because investors now realize that the Hep C drug is just too good for health care providers not to offer. It doesn't hurt that the company has a huge stockpile of cash—indicating a possibly transformative acquisition.
Meanwhile, AbbVie is now desperate to replace its soon-to-be-lost revenues from Humira and was even willing to pay $21 billion for Pharmacyclics in cash and stock. At first AbbVie's stock was hit big, but it has now climbed back to where it was before the deal because investors have realized the value of Pharmacyclics. Heck, most people had never even heard of Pharmacyclics before the bid!
This was exactly the same reason why Receptos is up so much this week. Cramer has heard many rumors that both Teva and AstraZeneca want in on Receptos, because of its drug in the pipeline that could potentially work against multiple sclerosis, ulcerative colitis and Crohn's disease. That's easy cash in the pocket of the big company that might just be lucky enough to snag the $6 billion Receptos.
----------------------------------------------------------
Read more from Mad Money with Jim Cramer
Cramer Remix: Greece talks could fail
Cramer: Do you have $$ loss mentality?
Cramer: Good signs hidden in the market
----------------------------------------------------------
"Given the paucity of new drugs that the old pharma companies are inventing, I wonder how these two biotechs can even stay public long enough to develop what could very well be the next Pharmassets, Regenerons or Pharmacyclics," Cramer added.
Meaning, Cramer definitely does not consider these crazy gains to be insane. To him, they are the definition of sanity, which is exactly why he continues to feature the biotechs and recommend them.
Ultimately, Cramer thinks these little biotech companies are the answer to the stale old pharmaceutical companies that have a good balance sheet, but no growth. Perhaps they should be your answer, too.
Questions for Cramer?
Call Cramer: 1-800-743-CNBC
Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine
Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com