(Bloomberg) — Stocks from just about every corner of the health-care industry have been beaten back this month as investors retreat from risk. But few have been hit as hard as biotechnology.
Most Read from Bloomberg
Even after Friday’s broader market rebound, the Nasdaq Biotechnology Index has fallen more than 14% in January.
Those high-risk, high-reward companies haven’t had a worse start to the year since 2016, when then presidential candidate Hillary Clinton was promising to rein in the high cost of prescription drugs.
Now, they’re being stung by the larger shift toward safe havens as markets prepare for the Federal Reserve to start raising interest rates. Higher rates weigh particularly hard on the valuations of growth stocks, and that’s adding to already existing concerns about patent longevity, drug-pricing reform and tougher merger rules.
Valuations have fallen so much that there are about 100 biotech companies whose cash stockpiles exceed their stock-market values, according to Truist, indicating that investors are deeply discounting the outlook for growth.
It’s not just the smaller biotech companies with no drugs yet on the market. Covid-19 vaccine makers have joined the rout. Moderna Inc.’s 37% January drop is its steepest ever and has turned it into the worst performer in the S&P 500. BioNTech SE is facing a similar drop, while peers working on second-generation shots like Novavax Inc. and CureVac NV have been virtually sheared in half.
Large-cap makers of drug, devices, scientific tools, and tests have slumped too.
Strategists have pointed to hedge-funds as one culprit, with some forced to liquidate their holdings as disappointed investors pull out cash.
Still, there may be signs that the biotech downturn is reaching its nadir. The equal-weighted SPDR S&P Biotech ETF, which trades under the ticker XBI, plunged 50% over seven months during the Clinton-fueled rout before its next advance. It has experienced a similar-sized drop over the past year, suggesting it could be primed for a reversal.
But Jefferies analysts said the current selloff is lasting longer than past ones — and that may mean it will take more time for investors to regain their confidence.
Most Read from Bloomberg Businessweek
©2022 Bloomberg L.P.
