Biotech Bulls Tiptoe Into 2022 After One of the Worst Years Ever
(Bloomberg) -- Biotechnology investors and analysts are hopeful that the new year can bring a rebound for the industry which has been left in the dust by broader benchmarks.
The Nasdaq Biotechnology Index has fallen flat in 2021, underperforming returns for the S&P 500 benchmark by more than 25 percentage points -- that is the third-widest gap since its inception in the early-1990s, data compiled by Bloomberg show. The equal-weighted SPDR S&P Biotech ETF (XBI), a fund specialists use to track the industry’s performance, is on pace for its worst year ever down 22%.
The rocky performance for the index, which includes 265 stocks ranging from heavyweight AstraZeneca to small-cap Calithera Biosceinces Inc., came after a record run and as investors shifted to tech giants like Apple Inc. and Nvidia Corp.
It also was a result of Covid-19 vaccine stocks stealing headlines and broader investor interest as they dole out billions of shots, while smaller and lesser-known stocks fizzled. BioNTech SE and Moderna Inc. have soared 242% and 163% respectively, while Alzheimer’s disease hopeful Prothena Corp. are the Nasdaq Biotech’s top performers for the year.
The biggest vaccine stocks are “in the news every single day and people who aren’t biotech experts tend to invest in what they hear,” Brad Loncar, Chief Executive Officer of Loncar Investments and a longtime biotech investor, said by phone. “And they’re hearing about Moderna or Pfizer and BioNTech and are throwing money at them.”
Industry watchers also point to underwhelming drug data, lackluster deal flow, regulatory setbacks and drug pricing concerns as reasons the sector has lagged. Drug flops for the likes of Odonate Therapeutics, Inc., Frequency Therapeutics Inc., and Deciphera Pharmaceuticals Inc. left investors with some of the biggest loses of the year.
But the outlook for 2022 is brighter.
RBC Capital Markets analyst Brian Abrahams argued that “the pendulum has swung too far,” while Wedbush analysts led by Laura Chico write that mid-stage companies such as Karuna Therapeutics Inc. and Xenon Pharmaceuticals Inc. are among the most attractive given their cash on hand and upcoming clinical and regulatory catalysts.
Another potential windfall could come for investors should cash-rich large-cap companies embark in an aggressive buying spree. Earlier this month, SVB Leerink’s Geoffrey Porges estimated that total potential cash and debt capacity for the biopharma industry may top $1.6 trillion by the end of 2022, with eight companies having potential for over $100 billion in dry powder.
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