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The rapid development and production of Covid vaccines sent biotech stocks to new heights last year, especially with shares in BioNTech and Moderna putting up numbers worthy of the NBA All-Star Game.
With the new Omicron variant causing jitters, and demand for booster shots higher than ever, this year would seem poised to continue that streak. Instead, the biotech sector is ending 2021 in a brutal slump that's wiped billions off the investments of some of the industry's biggest hedge funds. There's still signs of life, though.
Even before the Covid pandemic, biotech funds were a shining star in the hedge-fund industry because of years of robust performance in the medical research sector. Perceptive Advisors founder Joseph Edelman bought a $70 million oceanfront mansion in California — the priciest in Orange County history —after his firm's funds rose 49% in 2019 and 31% in 2020.
But now biotech's oceanfront is facing a perfect storm. Inflation in the US has pushed costs through the roof, the Omicron variant has led the FDA to prioritize Covid treatments over others, and some retail and institutional investors with a risky appetite are decamping for the wild world of crypto. It's made for some gruesome returns:
- The SPDR S&P Biotech ETF, the bellwether for the industry, lost 7% of its value in November, hit by all these compounding problems.
- Cancer immunotherapy firms Adaptimmune Therapeutics and Agenus each lost 18% of their value last month, and even COVID-19 vaccine developer Ocugen tanked by a shocking 46%, according to S&P Global Market Intelligence.
Hedging Their Bets: The main fund at Perceptive Advisors, which manages $9 billion, lost 30% this year through November, while an $18 billion healthcare fund at OrbiMed Partners lost 40%.
Here's Hoping: The current sell-off is seen by optimists as a blip — and previous declines have given way to bigger rallies. With new Covid-19 drugs on the way, revenues could boost in 2022 — SVB Leerink analysts predict American and European biopharmaceutical companies could have more than $500 billion on hand to deploy by late 2022.