Illustration: Aïda Amer/Axios
The biotech industry is slumping after delivering life-saving COVID treatments and attracting droves of investors early in the pandemic.
Why it matters: Biotechs keep the drug pipeline flowing with novel treatments — and make attractive M&A targets for big pharmaceutical manufacturers. But regulatory uncertainty and a return to pre-pandemic life are combining to cool interest in public and private markets, experts say.
By the numbers: The SPDR S&P Biotech ETF fund, which is often used as a proxy for the industry performance, is down more than 37% over the past 12 months, far underperforming the broader market.
- Biotech funding in February was down 59% year-over-year, with both public market transactions and venture capital funding falling off, per Jefferies.
Zoom in: After a run of explosive growth, the industry may have been due for a correction. Biotech flourished at the height of the pandemic, but investors are now returning to other sectors, including retail and transportation.
- Analysts say investors also have been confused by the sheer number of biotechs being funded in private markets — and are uncertain how to pick winners and losers.
- "To me it comes down to the pace. It's been a little bit too fast and I think a lot of that is coming home to roost," Oppenheimer strategist Jared Holz said on a recent "Bio Banter" podcast.
- There's also continued uncertainty surrounding drug pricing legislation, pharma supply chains and federal antitrust reviews. Prospective changes to the FDA's drug approval process also could be in the offing.
Yes, but: The biotechs still are churning out products for investors to put money into. Biotechs that depend on capital markets grew R&D by 20–25% last year, Jefferies estimates.
The big question: Will dealmaking pick up because the companies are cheap, or will big drug manufacturers like Johnson & Johnson, Merck and Bristol Myers Squibb build out their pipelines on their own?
- After driving so many industry decisions the past two years, COVID is no longer the all-consuming factor, Oppenheimer's Holz said.