Time to go back to biotech?
The listed biotech sector has had a significant sell-off over the past year but innovations still abound, leading investors to ask whether it is time to get back into the market.
Spurred by COVID-19, the S&P Biotechnology Select Industry index had risen 32.5% in 2019 and 34.8% in 2020, as investors embraced the growth potential of a large number of biotech listings.
But following rising inflation and interest rates, and tougher regulation of the biotech sector, the index fell 15.8% in 2021 and another 37.8% this year.
ETF Securities head of distribution, Kanish Chugh, said the cycle of peak to trough was nothing new for the biotech sector and that healthcare advances would only become more important as the population aged.
“Over the past decade we’ve seen investor enthusiasm for biotech’s limitless potential send prices surging well above the S&P 500, only to be reversed as assets implode and investors flee the sector.
“The rapid creation of viable COVID-19 vaccines in response to a highly infectious and deadly pandemic proves the value of biotech, where nimble companies were able to win the vaccine race over big pharmaceutical companies,” Chugh said.
Dr Bianca Ogden, portfolio manager of the Platinum International Health Care fund, agreed there was a lot of innovation still happening in the space.
“So you've got a lot of technologies that are emerging, be that gene editing, be that gene therapy, be that mRNA therapeutics. Now, obviously, it's uncertain because we don't really know what happens in the future,” she said in an investor video.
“But what we do know is there's a lot of investment has gone into it and is still going into these kinds of platforms.”
Providing an example of a successful stock pick, Ogden pointed to Platinum’s investment in Moderna back in 2016 and 2017 which went on to develop a COVID-19 vaccine.
“At that time, it was all about this platform, how they make or turn mRNA into a therapeutic and it was at the time therapeutic. Vaccines were in the background.
“They were basically tinkering around trying to make it more stable in humans, trying to modify it so it expresses what they wanted at the rate and no one knew whether this would work. And then what is also important and what people sometimes forget, it is not just about the platform, it is also about the application. What is the best application to showcase your platform that it works?
“What we have today, there's lots of companies that are doing similar things, and to us, not all of them will succeed.
“But a lot of them will succeed over the next five to 10 years… and you get much, much better valuations. And I think that's the important part and that's why people should have healthcare and in particular biotech in their portfolio.”
Chugh concluded: “If history is any guide, the question is when, not if, the sector will recover.”
AUTHOR
Liam Cormican
Recommended for you
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
Responsible investment performance concerns have lessened as the market hits $1.6 trillion in AUM, according to RIAA’s annual report, but greenwashing fears among asset managers are on the rise.
