MarketsJul 27, 2024
Is Biotech Back? The Risky Industry Is Waking Up After Low Interest Rates Cratered Investment, Dealmaking, and IPOs
Healthcare Rebound
Noah Weidner
Discover
Sometimes, even those doing the saving need a little help themselves. And the patient in need of a lifeline is the biotech industry — which is about to get another chance from a dose of falling interest rates. Since the end of the pandemic, biotech firms have been punished by higher interest rates and one of the worst sector sell-offs in recent history. But the industry might be about to get the breakthrough therapy needed to bring it back to life.
Bio, you alive? With interest rate cuts anticipated to tee off in September, investors are once again warming up to riskier growth stocks — reigniting talks of a biotech bounce after a rough three years, which saw the SPDR S&P Biotech ETF fall 59% from its Feb. 2021 all-time high. But since Oct. 2023, the index has rallied 58% — and there may be plenty more room for it to run.
There’s one notable reason to cheer for smaller biotech and healthcare names — they are well-represented in the Russell 2000. And if you’ve been paying attention, that’s good news. Unlike the tech-heavy S&P 500 and Nasdaq-100, the growth stock index primarily concentrates on financials, healthcare companies, and industrials. As a result, the bio bump has been waking the index up again.
Stay tuned… Biotech’s big comeback has been a long time coming. After a tough 2022, as many as 320 biotech companies were on the brink of bankruptcy. And in 2023, a record year for biotech M&A came as many companies went on a firesale. With the Russell 2000 and down 11% and 39% from their all-time highs, 2024 could shape up differently and align the fates of both biotech firms and growth indexes.
