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The Bull Market in Biotech Stocks Is Still Going StrongThe Bull Market in Biotech Stocks Is Still Going Strong By Josh Nathan-Kazis / Barrons / Aug. 4, 2022 Drug-test results, stock buybacks, and merger activity have all helped to lift stocks in the sector. The rally in biotech stocks that started in the middle of June isn’t showing signs of letting up quite yet, subverting expectations that a bear market in the sector would soon return. The SPDR S&P Biotech ETF (ticker: XBI), which tracks the biotech sector, is up 32.5% since the markets closed on June 14, a period in which the S&P 500 has climbed 11.4%. The XBI is still down 24.9% so far this year, but while the ETF had fallen from the $110 range to the $60 range earlier this year, it is back up to the $80 range this summer. Questions remain as to how long-lived this biotech run will be, and whether it reflects a substantive shift in the direction for the sector or a momentary blip. News about the sector does seem to have grown more positive in recent months, even considering the increasing likelihood that Congress will approve drug-price legislation in the near term. Beyond the much-discussed reports that Merck (MRK) is in negotiations to acquire Seagen (SGEN), recent weeks in the biotech markets have seen market-moving drug-testing results, big stock buybacks, and merger activity—all the ingredients that analysts had said would be needed to change the market’s outlook on biotech stocks. “Asset sales, cash distributions, reverse mergers, M&A and several positive datasets have helped lift Biotech off of once unfathomably low levels and back towards respectability despite still being off close to 30% YTD,” Oppenheimer healthcare equity strategist Jared Holz wrote in a note to investors late Wednesday. One other possible factor is that the rebalancing of the Russell 2000 index in late June, which bumped a large number of biotechs from the index, may have allowed specialist biotech funds to sell their holdings of some of the worst-performing stocks in the sector, freeing up capital to spend on higher-quality names. It’s a case that Exome Asset Management senior investment analyst Sameh Ahsan made to Barron’s in May, and while it’s hard to draw a sharp line between cause and effect, the timing that Ahsan predicted seems to have worked out. Wednesday was a particularly strong day for the sector. Moderna (MRNA) rose 16% after reporting earnings that beat Wall Street expectations, while Alnylam Pharmaceuticals (ALNY) climbing 49.3% on positive results from a much-watched trial. Regeneron Pharmaceuticals (REGN) also climbed 5.9% on strong earnings results on Wednesday, while Gilead Sciences (GILD) gained 4.6%, also after reporting its financial performance. Thursday is also shaping up to be a busy trading day for biotech. Amgen (AMGN) announced a $4 billion all-cash acquisition of ChemoCentryx (CCXI), which recently received Food and Drug Administration approval for a drug Tavneos that treats an autoimmune condition called ANCA-associated vasculitis. ChemoCentryx shares were up 108.4% premarket, while Amgen shares were flat. Gilead also announced a deal on Thursday, snapping up a private U.K.-based biotech called MiroBio for $405 million in cash. Gilead shares were down 0.3% in premarket trading. Many larger biotech names are trailing the XBI during the current run-up, but had better starts to the year, so they continue to outperform the broader ETF so far this year. Regeneron, for one, is up 11% since mid-June, but only down 3.6% in 2022. Another large-cap biotech, Vertex Pharmaceuticals (VRTX), is up 10.4% since mid-June, and up 25.2% this year. Biogen (BIIB) is up 10% since mid-June, and down 11% year to date. Instead, much of the strength of the sector in recent months seems to have been driven by mid-caps like Beam Therapeutics (BEAM), which had rough starts to the year. Beam is up 104.4% since mid-June, though still down 20.9% this year, with a current market value of $4.2 billion. Fate Therapeutics (FATE), with a market value of $3.2 billion, is up 76% since mid-June, and down 43.9% this year. |
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