Seattle Genetics (SGEN) just received approval for Adcetris within the last hour. The stock spiked to $15.93 and has settled back towards the $14.40 level as I write this. Both values are well off the company's recent highs. This is SGEN's first approval. The drug is the real deal and Wall Street is confident it will sell. This is SGEN's first approval, but they have a deep pipeline. Their core technology is the best in the business and in high demand by big pharma.

So why the mediocre price response? Some will blame it on Dendreon's (DNDN) recent sales forecasting debacle. Certainly that is on traders' minds, but this sell-the-news phenomenon predates Dendreon's implosion.

We are, in my opinion, on the back side of the latest biotech cycle. As we saw in 2000/01 and 2003/04, the back side of the cycle is dominated by momentum players who are in only for the news spike. These "mo-mos" roll out of their positions and sell on the news, driving prices down.

On the front side of the biotech cycle, mo-mos are outnumbered by fundamental investors who buy based upon the decreased risk these news events often provide. On the back side of the cycle, mo-mos outnumber fundamental investors. There are so many mo-mos, prices actually drop despite news decreasing the risk in the stock. Fundamental investors stand aside, knowing they can get even more risk-decreasing data points (early sales progress, for example) without having to worry about missing a rally.

Once the mo-mo crowd finds another sector to haunt, biotech will go back to more normal behavior where good clinical trial data and FDA approvals will result in strong price gains. Until then, fundamental investors need to be more strategic around news events to protect/lock-in their profits.