By Todd Shriber via Iris.xyz
It pays to be discerning in financial markets. The action in biotechnology stocks this year is a reminder of the benefits of that advice. For example, the large-cap Nasdaq Biotechnology Index is up just 0.53% (as of May 24th).
The top four components in the Nasdaq Biotechnology Index are all large-cap stocks, but just one; Amgen Inc. (AMGN), is higher on a year-to-date basis. Celgene Corp. (CELG), another marquee member of the Nasdaq Biotechnology Index, is down 23.16% as of May 24th.
Through about five months of 2018, one thing is clear in the healthcare sector, including biotechnology investments: smaller has been better. Consider this: As of May 24th, the Russell 2000 Index and the S&P SmallCap 600 Index are up 6.28% and 7.55%, respectively, year-to-date. The S&P 500 is up just 2.24%. On May 23rd, the Russell 2000’s healthcare weight was nearly 200 basis points higher than the S&P 500’s. As the chart below indicates, smaller healthcare companies, including biotech names, are playing a pivotal role in the recent resurgence of broader small-cap benchmarks.
On The Prowl
Since the start of 2018, a widely cited catalyst for mid- and small-cap biotechnology companies has been speculation that industry consolidation is poised to increase. While mergers and acquisitions (M&A) activity has been brisk since the start of the year, the largest biotech and healthcare companies still have plenty of room to make deals.
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