| Hi there, You’ve probably seen John Mauldin’s latest issue of Thoughts from the Frontline on COVID-19 and the latest developments on the lockdown and safety directives. Even though the rate of infection seems to have gone down, the virus is still on everyone’s minds. And it has highlighted a particular market sector: biotech. Hi, I’m Chris Wood, chief investment officer for healthcare and biotech here at Mauldin Economics. I’m writing you today with what you could consider a public service announcement. As you can imagine, I’m watching the biotech industry closely, day in, day out... and it hasn’t looked this good in years. If you’re looking to recoup some recent portfolio losses by investing in a hot market, I recommend you keep an eye on these stocks. The iShares Nasdaq Biotechnology ETF (IBB), the most liquid proxy for US biotech stocks, soared nearly 30% over the past 12 months. That’s almost three times the return of the S&P 500 over the same period. And there’s no sign of biotech slowing down, according to the IPO market. The IPO market is an important yardstick for the health of the biotech industry. And right now, it is booming—which has been a surprise even for insiders. In April, IPO research firm Renaissance Capital stated that public offerings were “stopped cold by the coronavirus meltdown.” While this has been true for most other industries, biotech has exceeded all expectations. So far, 23 biotech startups have launched their IPOs since the beginning of this year, according to market researcher BioPharmCatalyst—an amazing feat that shows COVID-19, rather than devastating biotech, has actually drawn everyone’s attention to it. In fact, the biggest biotech IPO of the year took place just last week. Legend Biotech (LEGN), which is developing cell therapies to treat cancer, raised a whopping $424 million with its IPO on Friday, June 5. And more biotech IPOs are on the way: five in the next eight days, according to BioPharmCatalyst. So none of the predicted gloom and doom has materialized for the biotech IPO market—in fact, it has been doing almost as well as last year. We saw one IPO launch in March and six in April and May, and all seven companies are currently trading at or above their IPO price. Two firms even saw a doubling and tripling of their share prices since IPO. The chart below shows the number of biotech IPOs vs. the number of IPOs in all other industries combined so far this year. As you can see, the biotech IPO market is indeed red-hot, with only one less IPO than all other types of businesses combined. Somewhat ironically, what has been horrible for many stocks has been a boon for biotech. Due to the global pandemic, everyone’s eyes are now on the companies that are working hard to find vaccines and effective treatments for this virus... and that particular wave has been lifting all of the biotech boats. Year to date, IBB has gained 10.9% while the S&P 500 has lost 1.2%. Jon Norris, a managing director with SVB Leerink, a Boston-based specialist investment bank focusing on the healthcare sector, pointed out that “life sciences is perceived as being at the forefront of dealing with this horrible pandemic, so people are putting a lot of their money into this area.” So should you invest in biotech IPOs? My answer would be no. My co-editor Jake Weber and I rarely recommend investments in biotech IPOs since they are often over-hyped. In order to maximize returns and minimize risk in this highly volatile field, you want to take your time to watch and thoroughly vet companies before you jump in. However, as I said, biotech hasn’t looked this good in years... so sitting on the sidelines through what may be a homerun phase would also be a mistake. In a few days, you’ll hear from Jake and me again so you can prepare for the biotech boom we are starting to see. Until then, Chris Wood
Chief Investment Officer for Healthcare & Biotech
Mauldin Economics | 