Biotech stocks started the year much the same way they ended it: getting hammered.
however, held on, and that may be reason enough to start munching on his stocks.
The sector had a terrible year 2021. The
the exchange-traded fund (ticker: IBB), which weights its holdings by market capitalization, rose 1%, its worst year since 2018, while the
SPDR S&P Biotech
The ETF (XBI) fell 25%, its worst year since at least 2007. This year was supposed to be better, but so far it has been anything but, with the iShares ETF down 7.9 % through Friday’s close and SPDR ETF down 8%. their worst start to a year since 2016. Blame it on the hawkish minutes of the Fed’s December meeting.
Still, there is reason to believe things could get better. For starters, biotech stocks almost never have two bad years in a row. The last time the SPDR ETF suffered a decline of 15% or more was in 2018, and the fund followed suit with a 33% increase in 2019. It fell more than 15% in 2016 and followed with a 44% increase in 2017.
The liquidation left more than 70 companies with more cash than their combined equity and debt, observes Baird analyst Brian Skorney, the most he has ever seen. “With the excitement of someone catching a falling knife, our perspective becomes optimistic about biotech outperforming in the future,” he writes. “Recognizing the persistence of structural risks, we believe the sector is now well in oversold territory and believe we will see a strong relative performance in 2022.”
Large-cap biotechs will offer a smoother ride than small ones, and Vertex (VRTX), in particular, looks appealing. Like many biotechs, 2021 has been a miserable year, falling 7.1% and underperforming the large-cap iShares Biotech ETF by around eight percentage points. Vertex, whose main drug is a treatment for cystic fibrosis, has been affected by the failure of two different trials for treatment of alpha-1 antitrypsin deficiency, lung and liver disease, one in March and the other in June.
Now the business looks interesting. As the biotech industry spent the first week of 2022 getting beaten up, Vertex gained 1%. One thing in his favor:
(ABBV) Cystic fibrosis treatment may not be as big a threat as some think, says Jefferies analyst Michael Yee, who named Vertex a franchise choice last month. “AbbVie isn’t that bad,” he wrote. “We argue that ABBV is way behind and frankly the bar is high to actually show some data that matters.”
As for the pipeline, it can still hold some surprises, despite the disappointments of last year. In December, Vertex announced positive results from a Phase 2 treatment trial for rare kidney disease, and ongoing trials for treatments for type 1 diabetes and post-bunionectomy pain could lead to positive surprises, says RBC analyst Brian Abrahams.
“We see… little value placed on the company’s pipeline, which should provide upside option and appreciation catalysts for any positive update,” he wrote. Abrahams has a price target of $ 265 on Vertex, up 19% from Friday’s close of $ 221.85.
Investors could find out more on Monday, when Vertex is expected to present at the JP Morgan healthcare conference. It doesn’t usually offer a lot of fireworks, but it might provide a first glimpse of some evidence from diabetes trials or pain treatment.
Either way, expect Vertex’s next stock move to be higher.
Write to Ben Levisohn at [email protected]