Biotech Sector Snapshot: 2021's In The Books, Onward & Upward
Long Only, Biotech
Seeking Alpha Analyst Since 2009
Founder of 500+ member ROTY Biotech Community (try the 2-week free trial to see if it adds value for you). Quality over quantity- enjoy connecting with readers.
Summary
- There's no question that biotech had a rough year, with XBI -20% return comparing poorly to SPY & QQQ performance of roughly +27%.
- ROTY main portfolio finished 2021 down 12% as contrasted to -20% for the XBI and +1% for the IBB.
- Since inception, ROTY main portfolio has returned +240% versus +57% for IBB and +60% for XBI (roughly 4x our benchmarks).
- I'm thankful that the rough patch forced me to make changes to my habits & improvements to my process that otherwise would never have happened.
- Feliz Año Nuevo to each of you reading this. I sincerely hope we have better times ahead and that 2022 is your best year yet (both investing & personally).
Weekly Advanced Chart
ROTY Portfolio (focused on catalyst pipeline/clinical momentum within the next 12 months)
Core Biotech Portfolio (focused on catalyst pipeline/clinical momentum within the next 3 to 5 years)
Closing Thoughts
In ROTY portfolio, we have exposure to some very exciting stories and needle-moving catalysts (BTCs making ADCs obsolete, sole DKK1 player in solid tumors, novel treatments for hearing loss, etc) going into 2022.
Likewise in Core Biotech portfolio, we have exposure to some very exciting themes in biotech (protein degradation, RNAi, cell therapy, targeted oncology, rare disease, synthetic biology, gene therapy, the list goes on) that should do well over the next few years.
As seen in returns above for ROTY, a negative year every so often is part and parcel of investing in biotech. We're being too hard on ourselves if we expect to be profitable all the time (although it certainly doesn't hurt to try!)
2021 IPOs returned an average return of -34%, a result of low quality, way too early (preclinical where blow ups more likely to take place) and oversupply.
Next year I along with others expect to see lower supply, more scrutiny on those brought to market and of course increased M&A (think of how much $$ Pfizer's Paxlovid will generate for example, all that cash flow).
I encourage readers to take the time to Brad Loncar's article What Happened in Biotech This Year, as he refuses to give into the pessimism and provides a balanced overview of the sector in 2021. Key points include:
- Bio stocks were trading at bubble valuations in February 2021, at some point a pullback (regression to the mean) was due
- IPO oversupply weighed on the sector, hopefully we see less supply in 2022
- 2021 was a slow year for M&A, as FTC/regulatory agencies showed more scrutiny (this should improve in 2022)
- Biden administration has not been good for biotech (efforts to lower drug pricing, waive IP in case of Covid vaccines, etc). Rationality should rule the day in 2022as a healthy middle ground is found
- Biotech is naturally volatile (couple positive years followed by a negative year, rinse and repeat much as has been the case in ROTY's performance)
To close, my goal for 2022 is simple, to keep improving my process and thus add value for each you.
Also, it's important to take time to enjoy the journey along the way and celebrate each win.
Hope 2022 is best year yet for each you!
JF
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