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It’s getting ‘bloody’ for biotech stocks

Biotechnology stocks could be breaking down.

The iShares Nasdaq Biotechnology ETF (IBB), which tracks biotech stocks on the Nasdaq, has gained more than 21 percent year to date, but was hit hard last week with a fall of more than 4 percent Thursday and extended losses on Friday.

"It's been bloody," said Thomas Shrader, who covers biotechnology stocks for Stifel. "I have almost no non-red stocks on my screen."

Shrader said interest in biotechnology picked up about two years ago, when companies were able to achieve effective lab trials of products earlier with the increased use of data and technology. However, he said he's noticed more cynicism from investors of late, who are more likely to flee a biotech stock after negative news, or an absence of any news at all.

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According to data from CNBC, 81 percent of stocks in the IBB with a market cap of more than $500 million are down more than 10 percent from 52-week highs, technically placing them in correction territory.

The worst performers of last week are BioCryst Pharmaceuticals, ANI Pharmaceuticals, and Vivus, down 30, 23.5 and 21 percent, respectively.

"It's really coming very close to that technical point of breakdown," managing director Boris Schlossberg of BK Asset Management said Friday on CNBC's "Power Lunch." "We'll see further choppiness in the sector before it comes back to further highs."

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Schlossberg said a correction in biotech stocks could be more severe than others, mainly because of the binary nature of biotechnology products.

"It's either a billion-dollar product or a big bagel, and therefore it has the hugest volatility," he said Friday. "Those are the things that take off. But when they correct, they correct very, very hard."

But Shrader said the biotechnology rally isn't over just yet.

"We've had little blips like this before," he said. "This incredible wave of innovation is still kind of playing out."

He points to the use of animal and human data, which decreases risks of failure in early trials as one driving factor in future biotech innovation.

Shrader recommends buying Kite Pharma, Inc., TRACON Pharmaceuticals, and FibroGen.

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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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