Chris Maggos

Have biotech stocks bottomed out?

by Chris Maggos (published in European Biotechnology, 15.11.2022)

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 and the Nasdaq Biotech Index (NBI) hit its all-time high of 5449.32 on 30 August 2021. 

The prolonged positive trend brutally reversed in September 2021 – the persisting Covid 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 1.2% for the DRG, the NYSE ARCA Pharmaceutical Index, through 15 November. The NBI is only down 9.6% compared to 17.1% for the broader S&P500 Index during the same period. This is a major change from early this year and late last year, when biotech was often amongst the worst performing sectors.

Glimmers of hope

The change occurred over the summer; NBI recovered from a low of 3368.13 on 13 June 2022 to 4276.98 at the close on 14 November, an impressive 909 point (27%) improvement. It is still 22% below the all-time high, so there is little doubt that investors have retrenched and began 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. Was the recent acquisition of Biohaven Pharmaceuticals by Pfizer a harbinger? Positive data, like the positive Clarity AD trial of lecanemab (BioArctic/Eisai/Biogen), have driven investors into many related neurodegeneration companies. 

More generally, the accumulation of biopharmaceutical and “omics” sciences knowledge is converging with increased computational power and robotics, to accelerate everything from drug development to enabling precision medicine. In short, biotechnology is no longer in its infancy. While no company is bulletproof, the industry as a whole is stronger than ever.