Learning Lessons From 3 Stocks Flourishing In A Desperate Biotech Bear Market

Learning Lessons From 3 Stocks Flourishing In A Desperate Biotech Bear Market

PeteSherrard/iStock via Getty Images Investment Thesis – The Biotech Sector – Usually So Successful – Has Been Tanking

The investor’s mantra “Buy Low, Sell High” is all well and good, so long as you are able to establish some kind of benchmark for what “high” and “low” valuations actually look like in relation to a particular stock market sector.

In the case of the biotechnology sector, investors may be tempted to say, for example, that a “low” price could mean a drop in the share price of 25% perhaps? If that is the case (spoiler alert – it isn’t) Then start buying! Because here is an astonishing insight into how bad the biotech bear market has been over the past 12 months.

For the past year I have been keeping an eye on the progress of a universe of just over 1,115 stock prices which I would define as belonging to either biotech, healthcare, health insurance, or pharmaceutical companies.

Of those, 979 have been listed for more than 1 year. I have just checked, and over the past 12 months, only 153, or ~16% of these stocks, have made a gain of any kind – with the average gain being a respectable 31%. That means that a staggering 962 of 1,115 stock prices – or 84% of this sector – have made a loss over the past 12m, and the average loss is an even more staggering 55%! Counting all stocks, gainers and fallers together, the average 12m performance is -42%.

That is a shockingly poor performance, and it is certainly hard to argue, on reflection, that we are not witnessing a meltdown of dotcom bubble proportions here. Not quite as bad, since apparently the technology heavy Nasdaq fell in value by ~77% when dotcom was at its lowest ebb, but very nearly as bad as the 2008 global financial collapse, when the S&P 500 fell from a high of ~1500, to a low of ~750, or by half.

The performance is all the more astonishing when we consider that 2021 was the year when arguably 2 of the most important medicines ever to have been developed – Pfizer ( PFE ) and BioNTech’s ( BNTX ) Comirnaty, and Moderna’s Spikevax – both COVID vaccines – helped to hold back a global pandemic, whilst making >$30bn of sales between them.

There have also been major breakthroughs made in fields such as cell therapy, with approvals for Bristol Myers Squibb’s ( BMY ) hematological cancer targeting Abecma and Breyanzi, and in gene therapy, with Intellia demonstrating the first successful application of a gene therapy in vivo , and CRISPR Therapeutics functionally curing patients with Sickle Cell Disease. There have been major disappointments too – the FDA’s controversial approval of Biogen’s ( BIIB ) Aduhelm, and the fierce backlash that followed doubtless reflected badly on the entire sector.

At the higher valuation end of the “biohealth” sector, the 50 companies in my >1,000 stock universe with the highest market cap valuations made an average gain of 14%, and the “Big 8” US Pharmaceutical companies – Johnson & Johnson ( JNJ ), Pfizer ( PFE ), Eli Lilly ( LLY ), Merck ( MRK ), AbbVie ( ABBV ), Bristol Myers Squibb ( BMY ), Gilead Sciences ( GILD ), and Amgen ( AMGN ) made an average gain of 15%.

At the lower end, however, the average 12 months performance of shares belonging to companies with a market cap <$10bn (currently) was -45%, and the average performance of companies with market caps <$1bn (currently) was -53%.

It seems clear then that at some point in 2021 – around the end of February / beginning of March – investors began pulling their money out of biotech companies at an astonishing rate.

Positive clinical trial results – usually regarded as major upside catalysts for biotech stocks – have begun triggering losses instead, as skeptical investors’ thoughts turn to the long path to an eventual approval, and cash likely to be burned along the way, punctuated by dilutive share offerings.

Rising inflation and the prospect of rising interest rates hasn’t helped either – cash rich biotechs are considered to be throwing money at projects with a tiny percentage chance of success – which is ok when yields are low elsewhere, but unacceptable when cash in a portfolio starts growing at twice the rate investors have become used to. Disastrous IPO’s Are Dragging The Entire Sector Down

There is also, arguably, too much investment in the private market – biotechs are completing huge funding rounds prior […]

source Learning Lessons From 3 Stocks Flourishing In A Desperate Biotech Bear Market

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