NEW YORK (Reuters) - Biotech's biggest companies could help restore investor confidence in the beaten-up industry as they report quarterly results starting this week.
Valuations suggest biotech shares could be closing in on a bottom, and some analysts said strong results could clear the way for potential buyers.
After a multi-year run, the Nasdaq Biotechnology index .NBI has fallen back some 30 percent since July. It is off 16.5 percent this year, worse than the roughly 7 percent decline for the broader S&P 500 index .SPX.
Pressure on biotech stocks stems partly from political criticism over medicine prices during the 2016 U.S. presidential campaign.
The broader market swoon has also wounded biotech share prices as riskier assets have lost favor to start 2016.
"If you do see sentiment returning to the large caps and you do see multiple expansion, that rising tide, if you will, certainly helps all boats," said Chris Raymond, senior biotech analyst at Raymond James.
Raymond said that the average "PEG" ratio, which weighs a company's price-to-earnings ratio against its growth rate, for six large biotech companies has dipped to 1.19. The stocks tend to bounce once it falls to 1, suggesting to Raymond they are close to a bottom but not quite there.
Large cap biotechs are trading at 14 times forward earnings estimates, similar to pharmaceutical companies and the S&P 500, a level that "has historically been a buy signal," RBC Capital Markets analyst Michael Yee said in a research note on Monday.
Scott Snyder, portfolio manager for the ICON Healthcare Fund in Greenwood Village, Colorado, sees 11 percent upside for the biotech group generally.
"It certainly looks more attractive than your average healthcare stock," said Snyder, who particularly favors Celgene, Amgen and AbbVie (ABBV.N).
The downward swing has snared small biotech companies, with analysts at Evercore ISI calculating last week that 36 firms are trading below the value of their net cash.
Fariba Ghodsian, chief investment officer at Los Angeles-based Dafna Capital Management, a biotech hedge fund focused on small and mid-cap biotech companies, said that strong sales from larger companies could help investor opinions of smaller companies.
"If sales continue to grow well," Ghodsian said, "then it shows for all the smaller-cap companies that have drugs in clinical development or in regulatory phase, that if the drug is novel, there is a market."
Reporting by Lewis Krauskopf, additional reporting by Alana Wise in Washington; editing by Linda Stern and Grant McCool