July saw a welcome comeback for the biotech industry as stocks increased, indicating a return of investor confidence in the sector.
As of the 28th of the month, with tomorrow still offering another full day of trading, there was a 12 percent jump in the Biotechnology index (NBI) with the gauge looking good for the largest monthly increase since 2013.
The current climate in the pharmaceutical sector has been unfavorable due to negative views on drug prices from many of the world’s leading governments. The NBI is still 20 percent below forecasts this year and over 25 percent below last year’s record breaking high.
Many analysts say shrewd investors are taking the chance to snap up the stocks. Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management said, “We seem to be on the precipice of a sentiment change. We are advising our investors to climb aboard the biotech train now while prices are low. The outlook has been bearish for some time, but indicators are right for investment in the industry.”
The downturn in the sector in the first 6 months of the year drove shares to record lows, with many of the largest US biotech firms trading at their cheapest levels in five years. Even today, they are still only 13 times earnings for their price-to-earnings ratios. The normal ratio for the last 5 years has been 17.
“Biotech stocks simply plummeted,” says RBC Capital pharma specialist Michael Yee. “The temptation is now there for investors to improve their portfolio for the industry, especially when many of the big companies were trading with pretty much no pipeline value in the first quarter.”
With the increased activity, stocks are now rising sharply. Biogen shares have gained 20 percent this month, with the firm’s end of month report indicating they will up its forecasts for the coming quarter. Alexion Pharmaceuticals, who produce specialist drugs, jumped 14 percent.
Prominent brokers are now marking the healthcare sector as a field investors should be looking to “overweight” and traders need not worry about volatile markets ahead of the US presidential elections, as those perceived fluctuations have been accounted for already.
Healthcare has pushed up the S&P 500 ladder with a 5 percent gain. Biotech has led the surge, however, the industry is still considered to be underperforming if the whole of 2016 is taken into account.
