There’s still plenty of room to run to return to prior highs, but some biotech stocks and exchange traded funds are showing signs of life. That’s encouraging after what has been a surprisingly long dour run for biotech assets. For example, the VanEck Biotech ETF (BBH) is higher by 11% over the past month.
Yes, the $509.1 million BBH is still in the red on a year-to-date basis, but investors could be in store for better things in 2023.
“Biotech companies—and their potential for success—tend to be highly idiosyncratic. That’s because biotech share prices generally depend on the success of clinical trials, acquisition- or partnership-related deals, as well as a company’s ability to commercialize a new treatment,” noted Morningstar analyst Lauren Solberg.
Potentially adding to the allure of BBH and other biotech funds is that, following the aforementioned longer-than-expected struggles, there’s value to be had in the biotech space. That’s a rarity because this group typically trades at rich premiums relative to the broader market — the result of the industry’s reputation for growth and innovation.
Some of BBH’s 25 holdings are considered undervalued at the moment, a group including COVID-19 vaccine giant Moderna (NASDAQ:MRNA). That’s BBH’s fifth-largest holding at a weight of 7%. Integral to the Moderna story is that mRNA technology is about much more than fighting the coronavirus.
“The mRNA technology seems underappreciated right now,” Morningstar analyst Karen Andersen said. “The mRNA vaccines for COVID-19 were a huge advancement in biotechnology. There are still a lot of other types of gene-based treatments in testing that show a lot of potential. The innovation is still there.”
Biomarin Pharmaceutical Inc. (NASDAQ:BMRN) is another example of a BBH component that’s currently undervalued. The company, which accounts for 2.51% of BBH, has an impressive pipeline and should be able to maintain its profitability profile.
“Commercialization and research and development expenses have kept BioMarin in the red, but we’re confident in the profit-generating power of its rare-disease treatments, and BioMarin’s turn to profitability looks maintainable. With a deep in-house pipeline and the ability to supplement growth with strategic acquisitions, BioMarin is in a strong position,” added Anderson.
Crispr Therapeutics (NASDAQ:CRSP) and Incyte (NASDAQ:INCY), two more BBH holdings, are also part of the undervalued biotech club.
“We think Incyte has a robust late-stage pipeline focusing primarily on oncology and other autoimmune indications, which provides attractive long-term growth opportunities for the firm,” concluded Anderson.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.