Thinning of Big Pharma’s Late Pipeline a Boon for Biotech
The author is an analyst of NH Investment & Securities. He can be reached at pk.park@nhqv.co. -- Ed.
In January, NYSE pharmaceuticals indices tumbled, with both large caps and small caps being weighed upon by adverse macro conditions. However, the coupling between Covid-19 sentiment and biotech appears to have ended. Given the decline in Big Pharma’s number of new drug substance pipelines in the late-stage clinical trial phase, we believe that the outlook for the biotech sector in 2022 remains clear.
Tunnel of long trough continued in January
Although a rebound for pure biotech plays was expected after the worst of 2021, Jan 2022 also proved sluggish amid rocky market conditions. In 2022, however, the mood appears to have shifted significantly. In 2021, the S&P500 Healthcare Index (+22.2% y-y) and Dow Jones Pharmaceuticals Index (+14.6% y-y) were driven by large firms related to Covid-19, while pure biotech ETFs such as XBI (-29.9% y-y) and ARKG (-41.5% y-y) took a beating. Thus far in 2022, returns have been hurt by a weakening of Covid-19 sentiment and harsh macro conditions, with major indicators such as the S&P500 Healthcare Index (-6.3%), Dow Jones Pharmaceuticals Index (-7.0%), XBI (-18.9%), and ARKG (-21.0%) all retreating.
In our view, however, the decoupling between large companies that have enjoyed the benefits of Covid-19 and pure biotech plays has been eased by the rising chances of an endemic situation after Omicron.
Thinning of Big Pharma’s late pipeline a boon for biotech
Over the past ten years, Big Pharma has seen a decline in the number of phase III substances based on new molecular entities (NMEs). Affected by Covid-19, the situation has only worsened due to the suspension of phase I clinical trials. In 2022, Big Pharma’s efforts to secure new materials and proprietary technologies will inevitably accelerate. Recent deals have focused on securing proprietary technologies in order to discover new targets and drugs, with clear examples including the BMS-Century IPSC deal (in January), the AstraZeneca-Scorpion transcription factor protein deal, and the Sanofi-Exscientia AI drug development deal.
For the domestic pharmaceutical/bio market, NYSE bio indices remain very important. Although the macro environment is still uncertain, we maintain a Positive outlook for the global pure biotech market, believing that 2022 will be a necessary phase of pharmaceutical/bio industry normalization.