Top Trends in Biotech Investing News in Q1 2016

2015 started as a good year for the biotech market, that is until the end of the third quarter where things started on a downward trajectory. For many investors, this was a signal that the biotech bubble they had been profiting from for several years was finally about to burst. Looking at the NASDAQ Biotechnology index (INDEXNASDAQ:NBI), the leading indicator of the sector, August 2015 brought with it a 32 percent decline in sector performace. The sharp declines persisted into February of 2016, when it seems the index has finally leveled off, letting biotech investors take a moment to catch their breath and assess what factors have been at play. 

Diehard investors know that the biotech sector is rife with innovation and opportunity. However, as with all good things, investors in this sector are just encouraged to wait a little longer before they seen that opportunity translate into returns in their portfolio. So far in the first quarter, the biotech sector has seen a decline in the number of IPOs and a simultaneous decline in ETFs. Here’s a more in-depth look at those two trends and how they can change in the months ahead. 

Biotech investing news: IPOs suffer early in the year

In 2015, it was noted that the instance of IPOs was less compared to Q1 2014. Indeed, investment in IPOs dropped by more than during Q1 2015, only hitting $789 million. And while at the time market watchers have been quick to point out that the decline doesn’t indicate an overall cooling in the market, as the biotech industry continued to achieve record-breaking numbers, they were wrong. The continued decline of IPOs bled into the early months of 2016, with only 4 IPOs recorded in the biotech industry, out of the 10 in the overall healthcare sector. 
David Schechner, managing director in life science investment banking with Vaird Global Investment Banking, has observed that “follow-on have taken the space where the IPOs are, and that’s healthy.” For Schechner, this decrease in IPO investment is an expression of cautious discernment on the part of investors: “[h]ow many IPOs can you do? You only want quality companies, and hopefully investors are discerning.”

Nonetheless, companies in the early stages of development continue to search for investors, particularly in this hot market. Among the companies that did follow through with their IPO in the sector, investors will find Editas Medicine (NASDAQ:EDIT), a gene editing company working with a new genetic engineering technique, CRISPR, that is slated to be one of the most revolutionary technologies of the modern day and definitely a buzzword that investors should keep an ear out for.

“While 2015 was the year of CRISPR, 2016 will be the year that the world realizes that CRISPR is a class of molecules.” The Accelerator VC noted in a trends article in January. With CRISPR on the cusp of becoming a trend in 2016, investors should “[e]xpect more and different types of CRISPR-like technology.”

Biotech investing news: ETFs disappoint in 1Q2016

1Q2016 was not a friend to biotech ETFs – it wasn’t very kind to biotech stocks in general, if we are being honest. Looking at of the biotech sector’s largest ETF, iShares NASDAQ Biotechnology Index (NASDAQ:IBB) investors can clearly see that since the beginning of 2016 the ETF has lost more than 20 percent. Likewise, Spider Shares S&P Biotechnology ETF shed 26.41 percent since in the first quarter.
ETF Trends points to several factors hindering the ETF performance including politics. “Election year posturing over drug prices represents a significant headwind for the healthcare sector and that is something biotech ETFs like IBB have already proven vulnerable to,” the publication wrote.
Yet, despite the bearish behavior of the biotech ETFs in 1Q2016, investors will be pleased to hear that there has been chatter of a more bullish future in the sector. That said, investors hoping to make the most of the sector’s lows might consider investing while the market is at its lowest point in order to reap the biggest benefits when the rebound comes.

Don’t forget to follow us @INN_LifeScience  for real-time news updates.

This is an updated version of an article originally published on Life Science Investing News on May 21, 2015. 

Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.

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