By Josh Nathan-KazisUpdated Sept. 3, 2021 6:47 am ET / Original Sept. 3, 2021 4:15 am ET
The market is littered with biotech stocks whose prices have fallen by more than half since the start of the year.
The list of big losers is long and, for biotech investors, more than a bit painful. The fallen stocks include established mid-cap biotech names like bluebird bio (ticker: BLUE), now down 57.7% on the year; Acadia Pharmaceuticals (ACAD), down 66.9%; and AbCellera Biologics (ABCL), down 57.9%. Sarepta Therapeutics (SRPT), once a large-cap name, has a market value that is $7.1 billion less than when the year began.
“By mid-August, family and friends were stealthily moving fragile objects out of the reach of biotech investors,” said a recent note from a biotechnology analyst at Cowen.
That widespread pain across small-cap and mid-cap biotech, and beyond, may come as a surprise at a moment when shares of Moderna (MRNA) and BioNTech (BNTX), the two companies that developed the most effective Covid-19 vaccines on the market, have climbed 273.3% and 307.9% so far this year, respectively.
Their skyrocketing share prices, however, are the exception in the sector. The SPDR S&P Biotech exchange-traded fund (XBI) is down 4%, during a period when the S&P 500 index has climbed 20.4%. Another ETF that tracks biotech, the iShares Biotechnology (IBB), is up on the year, but is capitalization-weighted, meaning that much of its assets are dedicated to larger names. Moderna and BioNTech alone make up 13.5% of its portfolio, and Jefferies analyst Steven DeSanctis calculated in a recent note that Moderna contributed 8.4% of its return.
There have been renewed signs in recent weeks, however, of substantial value hiding among the biotech dross.
In late August, Pfizer (PFE) paid a 203.8% premium over the previous day’s closing price for Trillium Therapeutics (TRIL), a biotech with two promising cancer drugs. And earlier last month, Sanofi (SNY) paid a 30% premium for Translate Bio (TBIO), a messenger RNA pioneer.
In an effort to find more-attractive bets in biotech, we talked to investors and analysts who focus on the field. They offered a list of interesting names, including Compass Pathways (CMPS), the United Kingdom–based biotech company testing the chemical in psilocybin mushrooms as a depression treatment, and Acceleron Pharma (XLRN), which is working on a drug for a rare cardiovascular condition.
Close watchers of the biotech market have different explanations as to why the sector has been so weak since early February. The underperformance comes after a notably strong 2020, and the major ETFs that track the sector still slightly outpace the S&P 500 over a two-year window.
“We’ve seen a lot of uncertainty with the FDA. That’s kind of bleeding into sentiment in the sector. ”— Neena Bitritto-Garg, Citigroup analyst
“It basically overshot during 2020,” says Ziad Bakri, manager of the T. Rowe Price Health Sciences fund (PRHSX). “The sector got a little too hot, and probably got a little bit ahead of itself, toward the end of last year.”