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  • Jonathan Poyer

Biotech Consolidating and Green Shoots In Time for Spring

The S&P Biotechnology Select Index ended 1Q 2023 down ~8%, marking the fourth consecutive drawdown in the first quarter for the index.

The S&P Select Biotech Index ended 1Q with nearly 75% of the components in the red, in sharp contrast to the >7% gain for the S&P 500. Remarkably, the S&P 500 was actually down ~2% percent without the 7 Big Tech stocks (AAPL, MSFT, META, NVDA, GOOGL, AMZN, TSLA). The divergence started in February and seemingly widened in response to turmoil in the banking system following the collapse of SVB and negative headlines on coming price controls from the so-called Inflation Reduction Act (IRA).

The US drug pricing outlook seems to compare favorably to the rest of the world though, as China reduced average prices for drugs by 56% during the most recent centralized procurement process. The S&P Select Biotech Index entered 2023 following its two worst years on record and more than 50% off highs set in early 2021.

Reset valuations set the stage for asymmetric upside in a subset of companies with differentiated profiles, while a growing number of companies are falling by the wayside as capital becomes scarce for marginal assets.

The S&P Select Biotech Index continues to consolidate above the 2022 lows as green shoots push through the scorched earth.

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