About a year ago, I wrote an article on biotech and said that I was minded to stick by my biotech and healthcare investments – Biotech Growth (BIOG), Worldwide Healthcare (WWH) and Syncona (SYNC). In retrospect, this doesn’t look like a great idea. Over the past 12 months, BIOG and SYNC’s shares are down by 37% and WWH is off 11%. Only one fund in the sector did worse; RTW Venture (RTW) which fell 38%. The underlying moves in net asset value (NAV) were not quite so bad to be fair; BIOG fell by 33.6% but SYNC’s NAV is actually up by 2.7%, it just moved to trade on a 21% discount.
So, what has gone wrong?
Biotech started underperforming well in advance of the rate rise driven sell-off in growth stocks. President Biden took a long time to appoint a new head of the Food & Drug Administration, but there was no real slowdown in novel drug approvals. Concerns about price controls have faded since two Democrat senators came out against the idea. There were a few high-profile clinical failures, particularly in gene therapies, but the main problem seems to have been that a lot of hot money was sucked into the sector when the pandemic hit.
Stocks developing vaccines were favoured and others neglected. Once the excitement died down, investors deserted the sector. Smaller companies were hit harder than large caps. As evidence for that, the Nasdaq Biotech index returned 1% in 2021 against a 27% decline for the more small-cap focused Russell 2000 Biotech.
In fact, the Russell index is now 60% below its peak, the second-worst fall in its history after it plunged 85% over the three years to March 2003. A record number of biotech companies are trading at less than twice the cash on their balance sheet.
Biotech has been hit harder than… read more here