Why It’s Been Bah Humbug for Biotech Stocks
In many ways, 2021 has been a banner year for biotech. Covid-19 vaccines and treatments have captured headlines and saved lives across the globe. Biotech has truly changed the world for the better—and yet, it’s been a terrible year for biotech stocks.
In the past year, the iShares Biotechnology ETF, which focuses on large-cap biotech stocks, has grown by an almost nonexistent 0.4 percent while the SPDR S&P Biotech ETF (XBI), which corresponds to the total return performance of the S&P Biotechnology Select Industry Index, has dropped nearly 20 percent. Meanwhile, the S&P 500 index is up by about 23 percent.
Clearly, there is a mismatch between the work the biotech sector is doing and its market-related performance.
Why are real-world results not equating to market growth?
Just as biotech is multifaceted, so, too, are the reasons for the sector’s failure to thrive this year.
More funds are focusing on private markets and dollars, and private biotech market is strong—with more than 500 companies receiving record-setting funding this year. However, some of the newer biotechs to go public have wrestled with overinflated valuations as well as lower interest from investors. Will there be a turnaround for the sector in 2022? Some believe that 2021 biotech stocks are hardly prime picks, so only time will tell.
In addition, Investors Prism recently discussed biotech stocks suffering from tax loss harvesting, noting that some of these struggling stocks could turn around to become winners in 2022. Likewise, the FDA’s approval process, concerns about potential pharma mergers and the ongoing pricing of drugs may have all played into the recent drops in biotech. Interestingly, the healthcare sector as a whole has performed well this year.
Public investors will continue to look ahead to the new year and new opportunities as they determine whether biotech is something to celebrate or something to avoid in 2022.