A Promising Future for Biotech

Going into its third year, the coronavirus pandemic has affected the market in a myriad of ways: record initial public offerings (IPOs), an exponential increase in retail investors and a new spotlight on the biotechnology sector. Despite an initial bubble in valuation for biotech stocks, the intense focus brought on by the coronavirus pandemic has brought the sector into the mainstream with a promising outlook. Many large-cap biotech companies saw gains and continued investment in vaccines and gene-editing, and biotech continue to garner interest from investors. To make sense of the current biotech market, Nasdaq held its annual Biotechnology forum to expand on the sector’s performance.

With a spotlight on biotechnology due to COVID-19, many biotech companies saw valuations skyrocket. The record number of IPOs seen this year—especially in the healthcare sector—is, in part, due to the high valuation of these companies.

Phil Mackintosh, Nasdaq’s Chief Economist, outlined this IPO trend, saying that “strong valuations and strong equity markets attract companies to public markets—it’s a good time to IPO.”

However, the astronomical valuations created a bubble for the sector, according to Brad Loncar, CEO of Loncar Investments and the founder of two biotech ETFs, who provided shocking statistics.

“You had a genomics ETF go from $2 billion to $13 billion in AUM [assets under management],” Loncar said.

But a 650% increase in valuation was too much for the biotech sector to handle, Loncar elaborated. Since it is still relatively new, biotech lacks the scale of high-valuation sectors like tech. As a result, 2021 became the year biotech felt the aftermath of this economic overheating. While the sector is showing declines, the negative numbers are mostly the settling of over-valuation to actual valuation.

The forum was unified in its belief that biotech would continue to expand at a record pace. 

In the past decade, public biotech companies have jumped from 200 companies to 800 companies. When it first emerged, there were only two biotech exchange-traded funds (ETFs) in total, the IPB and the XDI. Now, there are many thematic ETFs covering mRNA, genomics, immunotherapy and more.

This future of increased investment, according to Loncar, will come from investors who see the rising presence of biotech in their everyday lives.

“In the tech sector, everyone thinks they understand tech. You see a Tesla driving down the street or you use zoom. The advances in biotech are just as exciting…but you don’t [usually] see it every day of your life. For the last two years, people have seen mRNA and what that can do…everyone is starting to see that this sector is special, and they want to start participating in it,” said Loncar.

The push for a COVID vaccine resuscitated the long-ignored vaccine wing of biotechnology with a huge influx of investment in mRNA that may now provide treatments for not just COVID-19 but complex viruses like HIV as well.

Meanwhile, gene-editing is becoming increasingly popular, with innovations that—if successful—could change the very nature of our healthcare models. Gene-editing is the ability to delete, replace, or insert DNA sequences into our DNA strands, and as a result, solve mutations that cause diseases like cystic fibrosis, heart disease, diabetes and more.

These diseases require extensive healthcare and cost, often with a fatal prognosis. With gene-editing technology that can solve these mutations at the outset, it becomes a form of preventative care with minimal cost comparatively.

While biotech has underperformed this year, 2021 is a sure sign that this sector has a bright future.

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