Click here to read the previous biotech outlook.
Biotech investments took a beating in 2021 even though investors were captured by the story of vaccine makers fighting COVID-19. Will 2022 bring a sense of stability back to the market?
Support for the overall life science industry has gone through the roof as the ongoing outbreak has highlighted the effectiveness and need for modern medicine, but biotech has been left behind.
While vaccine-focused companies have gained attention, companies operating in other areas haven’t benefited. Hopes are high that the sector will get back on track in the year ahead.
Here the Investing News Network takes a look at what lies ahead for the biotech space for 2022.
Biotech outlook 2022: Bear market has lasting effects on sector
Experts have given biotech bear market status after 2021 produced a poor set of stock results across the board.
“While several bigger groups are being rewarded for Covid-19 and other clinical successes, earlier-stage and higher-risk biotechs are, for now, out of favour,” a 2022 market report from Evaluate Vantage indicates.
One of the reasons for the general biotech downturn may be related to the shine seen for COVID-19 businesses.
“Anything that’s Covid-related has done well, or at least held up,” Brad Loncar, CEO of Loncar Investments, told ETF Trends. But that may very well be the problem for biotech, as he told Bloomberg recently.
“(Vaccine stocks are) in the news every single day and people who aren’t biotech experts tend to invest in what they hear,” Loncar explained to the news outlet.
According to Bloomberg, RBC Capital Markets analyst Brian Abrahams said 2022 could show a return to form for biotech as he believes “the pendulum has swung too far” out of favor for the market.
Biotech outlook 2022: What’s the appetite for biotech IPOs in 2022?
Sentiment surrounding biotech initial public offerings (IPOs) was negative in 2021, according to the Evaluate Vantage researchers, with the majority of these new companies soon sinking below their debut levels.
The report indicates that the IPOs seen in 2021 may have been excessive, and “could end up damaging the sector’s reputation.” Fewer IPOs are expected in 2022 given current market conditions.
“Bankers must hope that they have delivered enough winners to the market to keep investors happy. There are certainly success stories to be found among recent new arrivals,” the report from Evaluate Vantage states.
So far 2022 has kicked off with three biotech IPOs, all of which ended up suffering a brutal welcoming party in the open stock market, although they did move upwards by the end of January.
“We’d like to see a healthy pace of transactions at less step up, more conservative valuations, and a realization that when IPOs do well, the whole sector can do better and it makes investors less turned off,” analysts at investment bank Jefferies wrote in a note to clients, according to a report from BioPharma Dive.
Biotech outlook 2022: Role of M&A for biotech stocks in 2022
Merger and acquisition (M&A) activity in the biotech industry is as present as lab coats in the drug-making environment. When it comes to 2022, there are varying projections about the number of deals and their sizes.
The appetite for M&A may be driven by the downturn in biotech stocks in 2021, making it more likely for newcomers and younger companies to look for bigger-name deals.
In general, experts are calling for M&A to pick up in 2022. A report from BioPharma Dive indicates that SVB Leerink analyst Geoffrey Porges expects to see a “significantly higher” number of biotech IPOs in 2022.
For their part, the Evaluate Vantage researchers said big sums of money are available to the top biotech names.
“What companies intend to spend these windfalls on will be another big preoccupation in 2022,” they explain in their report. “Depressed valuations in the wake of a difficult few months on the stock market are another likely trigger for these transactions.”
Biotech outlook 2022: Investor takeaway
Biotech stocks faced a difficult period in 2021, and expert analysis shows the bottom may not be in yet.
New opportunities will arrive in 2022, but one predominant issue appears to be the lack of attention for the space despite the wide interest for the life science market thanks to COVID-19 vaccine work.
Investors will be watching the long-term progress of biotech stocks, keeping a keen eye on sentiment as companies attempt to emerge from the current bear market.
Don’t forget to follow @INN_LifeScience for real-time updates!
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.