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3 Top Trends That Will Affect Biotech in 2023

Pull quotes were provided by Investing News Network clients Avricore Health and Sirona Biochem. This article is not paid-for content.

In 2022, nearly every industry on the planet faced financial difficulties. Biotech, which as part of the healthcare sector often has more resilience to catastrophic market conditions, also struggled.

As investors look ahead into 2023, what trends could set the standard for the new year in the world of biotech?

Here the Investing News Network (INN) presents the 2023 Outlook for the biotech industry.

1. Financial outlook for biotech stocks

Raj Lala, president and CEO of Evolve Funds, told INN when it comes to 2023 for healthcare stocks he expects to see a continued resilience to the market challenges currently present.

“Scale is important in the healthcare industry, and for that reason we favor owning the largest names in the category,” he said. “In addition, we expect continued market volatility next year, which favors a covered call strategy.”

If a recession were to take place, then the fund executive said names in the space would “continue to perform well” since investors tend to prefer “defensive sectors” like biotech.

In justifying his defense of these stocks during turbulent times for the economy, Lala said, “Healthcare stocks are perceived to be stable companies that offer products people need even during a recession.”

While the industry is celebrated for withstanding tough blows to the global economy, last year proved tricky for the biggest biotech indexes out there.

For example, the iShares Biotechnology ETF (NASDAQ:IBB) ended up down 6.59 percent for the entirety of 2022.

Merck & Co (NYSE:MRK), Lilly (NYSE:LLY) and Abbvie (NYSE:ABBV) earned the top gainers spot for the big pharma names in 2022 in a list prepared by biopharma researchers Evaluate Vantage, continuing to show the dominance of the biggest names in the space.

2. IPOs on the way back?

The biotech sector is at times dictated by the amount of initial public offerings (IPOs) in the open market.

In 2020 and 2021, the industry saw an unprecedented flurry of listings showing the backing and support from the capital markets for medicine efforts at a time when the eyes of the world were turned to COVID-19.

However, in 2022, the result of this trend was a bloodbath for a lot of new listings who struggled to scrounge more capital.

Jeff Jonas, leader of a biotech incubator and former executive at Sage Therapeutics (NASDAQ:SAGE), told BioPharma Dive that companies need to be designed to be more “fiscally prudent” so they don’t end up strapped for cash.

“The market’s going to turn. It’s going to change,” he added. “The key is always having clear catalysts, operational excellence, and things that create real value.”

Investors will have to maintain an eye on the progress of IPOs and the health of newcomers into the space. How welcoming the market will be to them, will have to be analyzed further.

But one expert expects to see more IPO’s than the depressed numbers seen in 2022.

According to a report fromBioPharma Dive, analysts at BMO Capital Markets wrote they expect to see more debuts in the biotech markets if the market performs at a better pace and the appetite for risk from investors seems favorable.

“We’re starting to see secondaries, and expect IPOs to eventually follow,” the analysts wrote in a note from December 2022.

3. Optimism for financial stability?

The biotech industry can be risky, so investors looking at the segment need to be prepared for that.

In a report looking forwards through 2023, Evaluate Vantage indicated rising global interest rates will continue to significantly affect the industry this year “providing a poor backdrop for the high-risk drug development sector.”

The issue for the health of the market in 2023 becomes political as well. Given the results of the mid-term elections in 2022, there is now a divided Congress, leading to butting heads in terms of decision making and legislation accomplishment.

This division will likely lead to discussions surrounding the Biden administration’s Inflation Reduction Act (IRA), enacted in August 2022, which impacts the biopharma sector.

The impact of the market health will be seen and felt most directly by the smaller companies out there, according to the report.

“This means portfolio prioritization, job cuts and deals struck out of desperation – and a rise in investor activism,” the report indicated.

On the upside, the researchers found most industry insiders believe the biotech space in the US has already seen its worst days. However, there are still those who believe there’s more pain ahead.

Investor takeaway

The industry is at a crossroads of expectations for whether the future will be more of the same struggles it saw in 2022, or whether the highs of the past will come back.

Don’t forget to follow @INN_LifeScience for real-time updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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