Biotechnology stocks are back in favor. The sector sold off in September but the Nasdaq Biotechnology Index has now rallied 18% since then and is now up 13% for the year.
Biotech stocks have outpaced the broader market since the autumn trough with shares of drug and health-care companies beating the market as investors seek out companies that have the potential to boost earnings and revenues.
The S&P 500’s health-care sector currently is trading at 22 times the last 12 months of earnings which is more expensive than the broader S&P 500, which trades at 18 times the last year of earnings, but it is less than the health-care sector’s price/earnings ratio of 23 at the end of the second quarter.
Biotechnology stocks are back in favor
Aging Population
The aging U.S. population and the Affordable Care Act are expected to boost health-care spending and biotech stocks in the long run and according to one analyst, biotech is one of the best areas for long term growth. Already, savvy investors who took advantage of the last pullback as an opportunity to snap up drug and healthcare companies are seeing profits.
Biotech is a pretty young industry. It only began to develop in 1980 when scientists successfully reproduced interferon outside the body in a way that it could be produced and offered to people as medicine. Interferon is a protein that are made in our cells when viruses (like hepatitis C), bacteria (like E. coli), parasites such as malaria or cancer cells attack our bodies.
In fact, the Nasdaq Biotechnology Index has gone up considerably in the last five years, even after its sharp drop in the early part of 2014 and stands today at 3590. The index’s 2015 advance, however, is on track to be its smallest since 2011, when it rose 12%.
According to one analyst at The Street, some twenty-eight biotech and drugs stocks grew their market caps to $1 billion or more in 2014 and although exact figures for 2015 are no all in, it has been a big year in biotech as well.
What’s Driving BioTechs?
So what’s driving the biotech market now? The answer lay in several lifesaving products mostly for cancer, like Gleevec. Gleevec has already converted one particular kind of cancer called chronic myeloid leukemia (CML) which used to be a sure death sentence but is now classified as a chronic disease and drugs such as Gleevec are being developed by close to 25 different biotech companies.
2015 has been a historic year for genetic engineering and research has been heavy in possible ways to manipulate DNA. In addition, 2015 was the year that the Food and Drug Administration broke the deadlock and agreed to allow direct-to-consumer genetic testing for 254 diseases as well as 36 autosomal recessive conditions and the “carrier status” of the individual being tested. This has been a major breakthrough in the ongoing research of recessive genes and how they are passed on to the next generation.
There has also been clinical trials on several Microbiome drugs, specifically addressing IBS—Inflammatory Bowel Syndrome--which affects over five million people worldwide.
Companies involved in engineering new (and fake) foods such as lab-grown hamburgers have made headlines throughout the year and have racked in millions of dollars.
Indeed, biotech companies have made impressive strides in their research in 2015 and have benefited profitably for their efforts.