Since the outbreak of the COVID-19 pandemic, the financial market has always been full of surprises, and the poor performance of the Biotech industry in 2021 is undoubtedly one of them. Biotech stocks continue to plummet and have suffered a blow for more than 12 months. Although Biotech performed very poorly in 2021, some promising data for may rebound significantly after . Securities analysts say the industry's current low-priced valuation may be a good entry point for investors.
A catalyst signal that emerged this fall is the clinical trial of lecanemab of FDA, which is about to be decided in conjunction with Biogen (Biogen) for the Alzheimer's drug Eisai (Eisai) (Figure 1). The results of the trial will be released in the fall to see if the drug can delay the progression of early Alzheimer's disease patients. Biogen has had to give up its plan to sell another drug for Alzheimer's disease, Aduhelm, because Medicare (Medicare) chose not to invest financial support as early as early as 2022.
Figure 1 lecanemab clinical trial schedule (Photo source: alzforum)
According to a report from Morgan Stanley html in July, positive results show that lecanemab will benefit millions of Alzheimer's patients and their families, and will also benefit investors in Biogen and Eisai, because Alzheimer's disease drugs can bring more than $20 billion in sales in the United States alone, not to mention the giant cake of global markets.
Figure 2 Goldman Sachs analyst Salveen Richter (Photo source: Picture source: linkedin)
Goldman Sachs analyst Salveen Richter (Photo source: linkedin) said in a research report on September 6 that if lecanemab shows positive data on the efficacy of early Alzheimer's disease, then Biogen's stock price may rise 40%, and if the data result is not the case, it may fall 12% , and caution needs to be maintained for Biogen. The biotech company's stock has performed poorly in the past three months, but the options market positioning has been more bullish lately.
Figure 3 Great Hill Capital Chairman Thomas Hayes (Photo source: linkedin)
New York Great Hill Capital Chairman Thomas Hayes (Photo source: linkedin) said that since the federal government is the largest customer, the trial results are promising to be a positive result that has a "huge driving effect" on the industry. “It’s a very expensive drug that I can’t afford,” Hayes said. “At the same time, lecanemab will be a promising benefit for families with Alzheimer’s disease. Another beneficiary will be Genworth long-term care insurance company.”
Biotech stocks Price is still Cheap
Biotech’s price-to-sales ratio remains at its lowest level in more than a decade, but the long-term outlook remains optimistic for investors who are patiently waiting for a rebound in the next two years. The last time the biotech market experienced a similar decline was between 2015 and 2016, with a drop of 50%. Hayes said that in the next 23 months, biotech stocks hit new highs, with the sector up more than 130% . The downturn in biotech began in February 2021 and has been revised by more than 50%, but a previous report by Bank of America said the rebound could be between 24% and 155%.
Figure 4 Former Chief Economist Anthony Chan (Photo source: jsonline)
Former Chief Economist Anthony Chan (Figure 4) said that biotech stocks are "casino-like investments that may win a lot of money or lose a lot. In an environment where high interest rates and high inflation pose a threat to the economy, many investors will avoid this industry ."
As the economic fundamentals weaken, the performance of the biotech industry is showing some flexibility. Most of the difficulties in the biotech industry come from the expansion of the spread of the Fed rate hike and the expansion of the credit . “These factors are negative factors in terms of valuation,” Chan said. “Biotech companies rely on long-term gains and get lower valuations at higher interest rates.”
In addition to Novo Nordisk spending a huge sum of $1.1 billion to acquire Forma Therapeutics to add blood disease business to its pipeline, transactions in the industry have also slowed down, Pfizer spent $5.4 billion to acquire Global Blood Therapeutics is to treat sickle cell disease; Amgen acquires ChemoCentryx for $4 billion, adding autoimmune disease , inflammatory diseases and cancer treatment to its portfolio.
Chan said credit markets have tightened due to the hawkish stance of the Fed's interest rate hike. "Trading activity seems to be starting to slow down because of higher credit costs, and risk appetite has quietly changed and capital costs have risen, given the insistence of Fed Chairman Jerome Powell . Since capital is no longer free, people are more careful about the transactions they make and how they pay for them. "The change in the Fed's current position may attract investors back, but they should look forward to waiting for a few years.
" It's a three-year bet, and the recession began in early 2022," Hayes said, with quantitative data showing, "It's undeniable that there are bargains in the market." Everyone knows that wealth is created by buying low and selling high, but when opportunities arise, there is always a reason not to intervene in . I like to say ‘ Wall Street is the only market in the world that holds a clearance sale’! The biotechnology industry is a reflection of this motto. For me, cash flow is the most important indicator because it is a means by which a company must return capital to shareholders in the form of a buyback, dividend or value-added acquisition. "A key factor, he said, is that as the multiples "overrush to the extreme on the downside, once they recover, they also tend to overrush in the euphoria of the rising." "In other words, they don't go back to the average multiple and stop." They will go beyond that range before they settle down. ”
Biotech is currently trading at its lowest price/sales ratio in more than a decade. The best way to play this sector is through the SPDR SP Biotech ETF, which currently trades at $75.76, down from a 52-week high of $134.79. The top four stocks in the ETF are AbbVie, Chemocentryx, Biohaven Pharmaceutical and Global Blood Therapeutics. Biotech stocks are still cheap for investors who hold a one-to-three-year perspective.
Biotech will bottom out rebound
Hayes remains bullish on the biotech industry as the Fed will eventually start to relax and mergers and acquisitions will return. “Biotech has a clear catalyst, market demand is starting to get rid of the COVID-19 pandemic, and drug pricing legislation is not as bad as the market fears,” he said. “Although the rebound from May lows, the industry has been out of favor and we can see more deals, integrations and more drug approvals moving forward. "When the Fed stops rate hikes and "the cloud of uncertainty fades, investors will focus on the long-term positive potential of the industry," Chan said. "As the industry has favorable valuations, now is a good time to start planning for mergers and acquisitions, we are at a point where valuations are attractive, but given that the acquirer's valuations have also declined." At this point, biotech companies may want to build partnerships to enhance their long-term profit potential and prepare for some exciting M&A opportunities as the storm fades. ”
Written by | Qiao Weijun
Typeset | Muzijiu
End
Reference materials:
[1]https://www.thestreet.com/investing/biotech-valuations-remain-in-a-slump?puc=yahoocm_ven=YAHOO
[2]https://www.thestreet.com/technology/biotech-stocks-could-rally
This article is original in BioExploration, and personal forwarding and sharing is welcome. If any other media or website needs to be reproduced, the source of BioExploration must be indicated in front of the text.
