But the panic selling was not entirely across the board: on the same day, the US biotech firm Moderna, one of three main suppliers of a Covid vaccine, saw its share price jump by 25%, adding a tidy $35bn to its market capitalisation. Moderna is an obvious beneficiary of any new round of pandemic panic, but the extent of the share price reaction was helped by news that it expects to have a new version of its Spikevax product out soon specifically addressing Omicron.
Such wild share price gyrations may be a sign of the times and emphasise the risks of investing in stocks in general, but they also neatly highlight the risks and opportunities of investing in pharma and biotech in particular. One observation is perhaps the biotech sector can be defensive at times of increasing economic uncertainty, while a second is that large share price moves in response to news are to be expected. So, while there is a strong argument for having pharma and biotech exposure within a balanced portfolio, there is also one for a level of diversification within it. This is something that is best achieved through holdings in sector-specific, actively-managed funds or passively-managed ETFs.
Timing is particularly important, as the biotech sector tends to move in and out of fashion quickly, given the fickle nature of global investors. Last year saw biotech stocks rise by some 50% or more, as measured by the US Nasdaq biotechnology index (XBI) and by a greater amount from the pandemic lows in March 2020. Over this period, the sector outperformed most other industry segments, barring perhaps US tech stocks. However, since February this year – when biotech stocks peaked – the sector has fallen by around 30% on average, suffering a particularly savage sell off by historic standards, as investors switched to companies more exposed to the post-pandemic economic recovery. The Omicron variant may yet prove to be the catalyst for recovery in biotech.
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