Have biotech stocks bottomed out?
Biotechnology was dramatically rewarded in the financial markets through much of 2020 and the first half of 2021, widely credited for providing the COVID-19 vaccines. This followed four already exceptional years in the financial markets, with the Nasdaq Biotech Index (NBI) hitting its all-time high of 5449.32 on 30 August 2021.
The prolonged positive trend brutally reversed in September 2021 – the persisting COVID-19 pandemic, global inflation and geopolitical turmoil delivered repeated seismic shocks to financial markets, and public equity investors, eschewing risk, dramatically reduced their exposure to biotech. The financing window slammed shut for biotech IPOs and venture capital investments dramatically slowed.
The storm in the markets over the past 14 months has been harrowing but recently, the thunderclouds seem to have a silver lining. Despite the fact that the same fundamental issues – COVID-19, inflation, volatile geopolitics – remain, it would appear that sentiment towards biotech has improved, as financial markets look to the future. The larger healthcare stocks maintained a more “normal” trading pattern, as a haven for investors during difficult market conditions, and recently smaller biotech stocks also started to recover somewhat.
Pharmaceutical and larger biotech stocks (i.e. the larger profitable companies with marketed products) are outperforming the broader markets in 2022. For example, Dow Jones Index is down 7.7% compared to only 1.3% for the DRG, the NYSE ARCA Pharmaceutical Index, through 15 November. The NBI is only down 9.6% compared to 28% for the Nasdaq composite during the same period. This is a major change from early 2022 and late 2021, when biotech was often among the worst-performing sectors.
The change occurred over the summer; NBI recovered from a low of 3508.58 on 6 June 2022 to 4248.70 at the close on 15 November, an impressive 740 point (21%) improvement. It is still 22% below the all-time high of 30 Aug 2021, so there is little doubt that investors have retrenched and begun to look for opportunities over the summer.
Nevertheless, the IPO window remains firmly shut with the fewest number of deals getting done year to date in more than five years. This is likely to remain the case while the question remains: Is this a durable recovery leading to an opening of the financing window, or the eye of the storm and just a prelude to greater losses ahead in light of worsening global crises?
More exciting acquisitions by larger companies could drive industry stock performance. Positive data, like the positive Clarity AD trial of lecanemab (BioArctic/Eisai/Biogen), have driven investors into many related neurodegeneration companies. While no company is bulletproof, the industry as a whole is stronger than ever.
This article was originally published in European Biotechnology Magazine Winter Edition 2022.
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