This year has been touch-and-go for healthcare investors, but for biotech specialists, it has been abysmal.
While the S&P 500 Health Care Sector Index is nearly keeping pace with the S&P 500 index, the two main biotech exchange-traded funds have struggled to remain in the black. One of them, the SPDR S&P Biotech (ticker: XBI), which focuses on small- and mid-cap names, is down 22%.
That has made for an unpleasant 2021 for biotech investors, but next year is shaping up to be brighter.
That’s not to say that all of the sector’s challenges will lift. Uncertainties remain at the Federal Trade Commission and the Food and Drug Administration. Private biotech investments are sucking the air out of the equity markets, and Washington is still working on drug price reform. Still, there is one area where 2022 seems likely to shape up better than 2021: pharmaceutical mergers and acquisitions.
Biopharma giants are sitting on tons of dry powder. One is Pfizer (PFE), flush with Covid-19 vaccine cash. Then there’s Novartis (NVS), which will still have some money left over, even after buying back shares with the bulk of the $20 billion it earned selling a stake in Roche Holding (RHHBY). And GlaxoSmithKline (GSK) will split off its consumer-health division next year.
SVB Leerink analyst Dr. Geoffrey Porges estimates that the big U.S. and European biopharma companies could have a combined $500 billion to spend on acquisitions and licensing, along with buybacks and dividends. A new wave of M&A could reawaken investor interest in biotech, making for a sunnier 2022 for the sector.
The outlook also depends on the direction the pandemic takes. The experience of Medtronic (MDT) in the fall, when a nursing shortage caused it to miss Wall Street expectations and cut sales guidance, is instructive: The pandemic’s second-order impacts are nearly impossible to predict.
See What’s Ahead for These Sectors in 2022
Write to Josh Nathan-Kazis at [email protected]
