Biotech has had a pretty good year between a flurry of deals and approvals of new drugs for vexing diseases such as Alzheimer’s. Yet that isn’t showing up in stock performance.
Two closely watched indicators lag far behind the overall market. The S&P Biotech ETF is up about 2% this year and the Nasdaq Biotechnology Index is down 1%. Meanwhile, the S&P 500 has gained 18% and the Nasdaq 34%.
Broader economic pressures like rising interest rates have made betting on biotech unappetizing. That initially hurt technology stocks, too. But these days, excitement about artificial intelligence has general investors wondering why they didn’t buy Nvidia Corp. instead of revisiting life sciences, Opler said. The enthusiasm spilled into biotech earlier this month when Nvidia partnered with Recursion Pharmaceuticals Inc., sending shares of Recursion soaring 78% in one day.
Prior to that investment, there were a number of events that would normally buoy biotech stocks, such as Pfizer Inc.’s roughly $40 billion proposed acquisition of cancer-drug company Seagen Inc., Merck & Co.’s almost $11 billion purchase of immunology company Prometheus Biosciences Inc., along with a number of smaller deals. Investors may be less excited with the Pfizer-Seagen deal under scrutiny and the Federal Trade Commission suing to block Amgen Inc.’s $28 billion acquisition of Horizon Therapeutics Plc.
Lawsuits over a new drug-pricing law and uncertainty about high-profile mergers and acquisitions raise questions about how large pharmaceutical companies will grow later this decade, posing headline risk this earnings season, Barclays analysts wrote in a July research note.
Biogen Inc. is slated to report Tuesday, with Moderna Inc., Regeneron Pharmaceuticals Inc. and Vertex Pharmaceuticals Inc. scheduled for next week.
Realization that the downturn will likely linger longer than once hoped has firms looking for ways to conserve cash. Already this year, 88 biotech companies have restructured, compared to 63 in the same period last year, according to Mizuho Securities analyst Mara Goldstein’s count.
Some of those moves were the result of disappointing scientific results, a regular occurrence in a field where failure is part of doing business, Goldstein said. Some of them have also been proactive moves, such as companies assessing the competitive environment and pivoting.
In February, Sangamo Therapeutics Inc. said it wouldn’t move forward with a late-stage study of its sickle-cell drug in order to save money. Minutes later, Graphite Bio Inc. said it was giving up on its experimental therapy for the disease after safety concerns, eliminating 50% of its workforce and exploring strategic alternatives.
Gossamer Bio Inc. in May disclosed it cut about 25% of its employees in order to focus on its experimental drug that’s furthest along in development. Earlier this month, Avrobio Inc. announced it’s exploring strategic alternatives, including a sale.