During the year 2020, the Biotech sector stood out compared to oil, real estate but even the tech sector. Due to the vaccine race, now the course of every sector depends on the events in the biotech sector. The pandemic will eventually come to an end, but the certain thing is the biotech stocks won’t ever be the same.
Biotech news related to the coronavirus has catapulted the whole stock market. Some of the most significant swings on the stock market revolved around coronavirus and biotech companies. Since May 18 when US biotech Moderna announced some positive data for coronavirus treatment, the biotech stocks continue to spike.
With the hope of profiting on the first cure for Covid-19, investments in young, innovative biotechnology companies have seen strong growth in recent months. But beware of the scrapping, the biotechnology market is one of the riskiest.
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The race for the Covid-19 vaccine is fueling the price of biotechs
Biotech companies have experienced a real boom in the financial markets in recent months. The Covid-19 pandemic is prompting many investors to bet big on young companies likely to find a cure for the virus.
Thus, American biotechs have raised more than $ 9 billion on the stock market in recent months, against “only” $ 6.5 billion in the whole of 2018, according to data from Dealogic. From May 18, when Moderna announced positive results, Nasdaq spurred to a 2.4% gain and the S&P 500 to 3.2%.
This blind race for the drug or miracle vaccine risks leaving individual investors behind since biotech is one of the most volatile markets. Biotech companies often have only one or two product candidates for treatment in stock, and often none on the market.
They must therefore finance their research and development, without yet having a significant income. Even as a specialist, you need a very fine-grained diversification and risk assessment approach.
Wave of IPOs
From Bio World’s report, we could see there were 495 experimental treatments for coronavirus as of July 23, 2020, with 158 potential vaccines in development. Moderna’s innovative technology is one of them. The American biotech has seen its share price go from nearly 19 dollars in January 2020 to nearly 70 dollars at the end of August, for a valuation of more than 26 billion dollars.
These numbers are in correlation with the Operation Warp Speed. It has been initiated by the Department of Health and Human Services in aim to deliver 300 million vaccine doses by January 2021.
But the promises of its biotechs are too good not to attract investors, eager to generate a quick profit. It’s evident that there is a positive interconnection between daily Covid daily cases and the Nasdaq Biotech Industry Index. Young companies benefit from this.
The number of IPOs of young biotechs has increased; each of the new entrants has seen their prices rise. This is the case of the German CureVac, introduced on Wall Street on August 14 and whose market capitalization is around 10 billion dollars.
States are also joining the fight. The US government has signed a $ 1.3 billion contract with Moderna to purchase one million doses. Its contender for the vaccine is among the most advanced in the world.
It is in phase 3 clinical trials, just like that of the alliances between the University of Oxford and AstraZeneca or Pfizer BioNTech. But the inflows of money by states do not mean risk reduction.
The stock market that is causing young biotechs’ prices to soar raises the risk of a small financial bubble bursting.
Biotechs that fail before they are put on the market – that is to say, the vast majority of them – will see their value drastically reduced. Such risk for a professional financial actor remains, in general, under control because it is diluted with other values.
Thus, if you want to be a biotech investor, the most important skill to have is looking beyond the headlines and risk management.