Why Biotech is the Most Hated Sector
So, why is biotech the most hated sector? The biggest issue stems from the sharp rise in interest rates, wherein stocks without profits are being shunned. This reaction is justified. The structure of biotech stocks operates as small biotechs concentrate on isolating a potential treatment, conducting research that can span years, and finally bringing a treatment through Phase 1 to Phase 3. Subsequently, a large biotech or giant pharma company swoops in to acquire the startup, initiating the costly process of gaining final approval, setting up manufacturing, and selling to doctors. However, this model was severely disrupted by Lina Khan’s FTC-challenging acquisitions of biotechs. This has led many developmental companies to retrench, cut staff, and use the secondary market to raise funds, thereby affecting biotech stock prices. Adding to the woes is the lack of profits that investors now demand, further depressing these stocks. However, all the stocks in this article have revenue, and some have soaring revenue but are opting not to show profits because they believe in developing fantastic pipelines and treatments.
Positive Signs in the Market
Currently, we are starting to see a bit of a rebound in the market, especially with the Equal-Weight Biotech ETF (XBI). After a continuous downward trend for about 6 months, the XBI has shown a slight breakthrough, capturing attention as a chartist. The upward movement is possibly due to the perceived break in rising rates, breathing life into this beleaguered sector. Additionally, the sustained rise in trading volume provides a positive technical indicator. This indicates a potential opportunity to take advantage of the change in the popularity of biotech names.
Selection Criteria and Stock Analysis
While many stock market generalists advise against speculating in individual small-cap biotechs due to the complexities of the drug approval process and the underlying biotech technology, there are compelling reasons to consider specific names. The criteria for selecting biotech names are straightforward. Look for biotechs that are at least at phase 3, addressing areas with no current treatment, and have significant potential in neurological disorders, genetic diseases, and cancers. Patient investors can capitalize on negative news, often misunderstood by trading algorithms, which creates excellent buying opportunities.
Top Picks for Investment
Here are some noteworthy biotech stocks worth considering:
Akero (AKRO) – Despite a recent fall due to an unmet primary endpoint, the company achieved statistical significance in one of its secondary endpoints, indicating potential for the treatment to progress to the next phase.
Apellis (APLS) – The company’s treatment for treating geographic atrophy (GA), despite initial setbacks, has shown steady recovery, offering a promising investment opportunity.
Axsome (AXSM) – With significant revenue growth and an extensive pipeline, the stock presents a compelling investment case, especially with ongoing trials related to ADHD and Alzheimer’s.
Sage (SAGE) – Despite stock decline due to FDA’s delayed approval process, the company’s breakthrough treatment for Post-Partum Depression presents a compelling investment opportunity, especially considering its extensive pipeline addressing various brain health conditions.
Taking a closer look at these stocks can lead to profitable investment decisions amidst the turmoil in the biotech sector.