If u soar high and high, what happens? You come tumbling down. The same holds true for the biotech sector which had a hellish second-half 2015 after a heady bull run. And the picture of the first quarter of 2016 is no different either with the Nasdaq Biotechnology Index declining 20.4% year to date. Biotech majors like Amgen Inc. (AMGN – Analyst Report) and Gilead Sciences Inc. (GILD –Analyst Report) among others are weighing heavily on the index with their share prices falling sharply year to date.
The bear run was sparked off by one “price gouging” tweet from Democratic Presidential candidate Hillary Clinton, which particularly had an adverse impact on biotech stocks. And it’s not just that. Strained balance sheets and macro economic factors are adding to investors’ anxiety.
But who knows that the year ahead could turn out be a promising one for the biotech industry? There are reasons enough to back this thesis.
First, the entry of the first FDA-approved biosimilar, Zarxio, a biosimilar version of Amgen’s blockbuster drug, Neupogen, into the market last year has left biotech companies vying to enter this high revenue generating space. Biosimilars it seems are the next big thing in the making.
Second, with several products gaining approval last year like Imlygic, Ibrance, Strensiq, Genvoya and, PCSK9 inhibitors, Praluent and Repatha, all eyes will be on their performance. Meanwhile, the companies would continue to work on label expansion of existing drugs to boost their commercial potential.
Finally, the dovish outlook of the Federal Reserve and Janet Yellen stating that they will “proceed cautiously” with interest rate hikes, the sector should continue to see a flurry of merger and acquisition (M&A) deals. With Shire Plc (SHPG –Analyst Report) and Baxalta Incorporated (BXLT – Analyst Report) agreeing to combine at the start of the year in a deal worth about $32 billion, rumors are doing the rounds of a few biotech companies hunting for lucrative deals.
