In what feels like an eternity in biotechnology terms, broader baskets of the industry’s stocks haven’t outperformed the S&P 500 Health Care Index annually since 2020.
That streak could end this year, but biotech stocks and ETFs still aren’t on fire. This concerns some market observers at a time when growth stocks are soaring. That sentiment belies opportunity with exchange traded funds such as the VanEck Biotech ETF (BBH).
The $478.45 million BBH, which turns 12 years old in December, is basically flat this year. That lethargy may give investors pause about accessing biotechnology stocks or ETFs. Or, it could imply that those assets lack the innovative zeal that made them favorites of growth investors in years past.
Regarding the second point, biotech, including some BBH member firms, remains a hotbed of innovation. It’s one of the premier growth corners of the broader healthcare sector. In other words, the long-term potential of biotech stocks and BBH remains intact.
BBH Headwinds Could Dissipate
Over the past year, the Inflation Reduction Act has been one of the drags on biotech equities and ETFs. That legislation, which recently turned a year old, includes provisions that would lower prices paid by Medicare and other federal buyers on select popular pharmaceuticals. In a recent mid-year biotech update, RBC Capital Markets analysts note that some biotech companies are fighting those provisions in court and that it’s possible those guidelines could be altered following the 2024 elections.
Those are longer-ranging issues, but over the near term, it’s worth noting biopharma firms, including some BBH components, are making progress in areas such as weight-loss therapies, among others.
“In addition to the dramatic weight loss achieved by the drugs, the GLP-1s may also reduce cardiovascular and liver disease. The resulting public-health gains would be wonderful. But they might also affect the prospects for other drugs sold to treat illnesses. That includes the liver disease called nonalcoholic steatohepatitis, or NASH,” reports Bill Alpert for Barron’s.
Gene editing is another long-term growth driver for the biotech industry. It should not be glossed over by investors considering BBH.
“Another promising breakthrough are gene-editing therapies, the one-time treatments that use the Nobel Prize-winning technology known as CRISPR to blunt genetic illnesses permanently. Intellia Therapeutics (NTLA) and Verve Therapeutics (VERV) are testing such approaches as treatments for nerve and heart disorders that otherwise require continuing doses of medicines sold by other biotech companies,” according to Barron’s.
Intellia is one of BBH’s smaller holdings and has previously been rumored to be a potential takeover target.
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