Stocks Of Biotechnology Companies Slump After A Disappointing Clinical Quarter

For the past two years investors have been pivoting away from risky assets like biotechnology stocks and they have remained under pressure, but a bigger issue emerged in the first quarter: bad results from clinical trials.

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According to Jefferies data as of Wednesday, stocks of drug developers have been suffering as positive data readouts for middle and late-stage studies dropped to 35% in the quarter. The stock has often experienced wild swings based on the results of clinical trials of their experimental therapies. This results in a much lower percentage of studies hitting their targets than the historical average of about half of the studies and marks the third-worst quarter since the start of 2015.

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Adding to this, Jefferies strategist Will Sevush warned that biotech is going through a period of uncertainty as well as increased concern over drug pricing, which can only keep the stock market down, according to an email he sent out recently.

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In the past few months, SPDR S&P Biotech ETF (XBI) has suffered a significant loss, despite holding beaten-down stocks including Altimmune Inc. and Bluebird Bio Inc. Since the beginning of the year, XBI has lost more than 8%, far below the broader market gains that have been seen.

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There has been a lot of trepidation in the life sciences industry since Silicon Valley Bank collapsed, a key financing cog for the sector, and companies have been forced to reveal their exposure to Silicon Valley Bank. However, the outcome of clinical trials is much more idiosyncratic than industry and macro headwinds that affect competitors alike.

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Nektar Therapeutics, a lupus drug company that fell nearly 50% to a record low in February after a mid-stage trial failed to meet its main goal, was among the stocks that fell after trial flops. Aclaris Therapeutics lost $380 million in market value earlier this month after a trial in a common skin condition failed, erasing $380 million in market value in a single day.

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It is likely that investors' and companies' fortunes will turn around in the near future. In the second half of last year, after a dismal first half, the readings were much stronger. Regeneron Pharmaceuticals Inc. and Sanofi announced in the past week that the chronic obstructive pulmonary disease trial results had been positive.

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In the coming months, FibroGen Inc. expects to release data from multiple late-stage trials. Cytokinetics Inc. is set to release data in the fourth quarter on its heart drug, which is closely watched.