When the stock market is hitting record highs, it’s important to remember that it’s really a market of stocks rather than a stock market. Not all companies are created equal. Nor are all sectors. Most investors probably just assume that the hot and promising field of biotechnology would be a great performer when the major stock indexes are challenging all-time highs. That should be the case, but sometimes things don’t go that way.
What is amazing is that the backdrop for biotech should be incredible. The FDA’s Center for Drug Evaluation and Research’s (CDER) shows that a record-breaking 59 novel drugs were approved in 2018 (58 named) and 19 of them were first-in-class treatments that are either different from those of existing therapies or treat diseases that have had no approved therapies.
Then there is the issue that politics is getting in the way for biotechs. Every level of government wants drug prices to be cheaper, and so does the public. Then again, there is a figure frequently passed around in the media that is costs more than $2 billion on average to bring a drug to market, when considering that less than 12% of targeted drugs actually get approved. That does not mean that any single company has a $2 billion or more cost to bring a drug to market, but the breakdown is fascinating considering that most drug targets will fall short of the $1 billion per year blockbuster drug status.
24/7 Wall St. has looked over some of the biotech sector’s laggards, and we have also looked over the top exchange-traded funds (ETFs) for a breakdown of what they own to show how much they are lagging against the market. This is a time when the Nasdaq Composite and the S&P 500 are literally one or two cheers away from all-time highs.
The $74 billion or so acquisition of Celgene Corp. (NASDAQ: CELG) by Bristol-Myers Squibb (NYSE: BMY) should have created a lot of excitement around biotech for 2019. The deal terms were 1 Bristol-Myers share and $50 in cash for each Celgene share. Unfortunately, the biotech sector has matured into one where there are several dominant players and a whole slew of up-and-coming companies with potential blockbuster drugs that are new to the market or should be coming to market soon. And despite Celgene already having received shareholder approval, its approval announcement indicated that the transaction is not expected to close until sometime in the third quarter of 2019. Bristol-Myers shares recently were down about 30% from their 52-week high, and despite a post-deal recovery rally taking shares up to almost $54, its shares were last seen at $45.00, which is still down over 12% year to date.
This might be a time when it would seem easy to point the finger at Biogen Inc. (NASDAQ: BIIB) after the biotech giant met earnings expectations, but the early gains turned into losses as the cloud of its failed Alzheimer’s drug continues to hang over the company. After opening up almost 1% higher, Biogen shares were last seen down almost 2% at $225.75. The shares have a 52-week low of $216.12 and a 52-week high of $388.67. The market cap is still up at $44 billion.
Gilead Sciences Inc. (NASDAQ: GILD) is another poster child of the “but you haven’t done anything lately” category of biotech stocks. Gilead’s shares peaked at roughly $120 back in 2015 as the hype of curing hepatitis C started to become reality, but the pool of people to treat is now much smaller and there is more competition. And Gilead’s $12 billion (or so) acquisition of Kite Pharma in 2017 has done literally nothing for the stock. At $62.78 a share, Gilead has a 52-week range of $60.32 to $79.61 and a market cap of $80 billion. Analysts have been down and out when it comes to Gilead, but it has been battered so much that analysts see almost 30% upside based on “value.”
Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) was last seen down almost 8% year to date, but it still has a $38 billion market cap despite selling off by 15% in the past 90 days or so.