The approval by U.S. regulators on Monday of a Biogen Inc drug to treat Alzheimer’s disease could reinvigorate investor interest more broadly in biotech and pharmaceutical shares that have struggled in 2021.
Biogen shares soared 38%, closing at their highest level in over six years, after the company’s aducanumab was cleared as the first treatment to attack a likely cause of Alzheimer’s. The approval lifted shares of other companies developing treatments for the mind-wasting disease and helped push key biotech stock gauges to their best days in months.
The renewed attention on biotech and pharma was welcome for investors who have seen those stocks lag in 2021 as focus has shifted to companies expected to thrive as the U.S. economy rebounds from the coronavirus pandemic.
“The biotech sector needed a spark and this was an explosion,” said Kevin Gade, a portfolio manager focusing on biotech and pharma stocks for Bahl & Gaynor.
Gade said Bahl & Gaynor owns shares of drugmaker Eli Lilly and Co (LLY.N), which soared 10% as the company is developing an Alzheimer’s drug similar to Biogen’s.
Prior to Monday’s news, the iShares Nasdaq Biotechnology ETF (IBB.O), the second-biggest healthcare ETF by assets, according to Lipper data, had climbed only 1% in 2021, well below the gain of over 12% for the benchmark S&P 500 (.SPX), while the S&P 500 pharmaceuticals index (.SPLRCCARG) had gained only 4.7%.
But on Monday the Nasdaq biotech ETF surged 3.4%, its biggest daily percentage gain in seven months. Driven by Lilly shares, the pharmaceutical index also gained 0.66%, outperforming the 0.08% drop for the S&P 500.
Biogen itself added over $16 billion in market value on Monday.
“This might just be the catalyst biotech investors needed to get this group back on track,” said Sahak Manuelian, head of equity trading at Wedbush Securities.
Ahead of the decision, Wall Street analysts were split over aducanumab’s prospects for approval, leading to the big share price reaction on Monday as the decision caught some investors off guard.
The approval “creates a little bit of a halo effect on biotech in general so you see the whole group trade higher on that now,” said Walter Todd, chief investment officer at Greenwood Capital Associates in South Carolina.
With U.S. President Joe Biden yet to name a permanent head of the Food and Drug Administration – the industry’s main regulator – that uncertainty has clouded the outlook for biotech and pharma stocks, Gade said. The industry has also seen some high-profile setbacks in recent months, such as disappointing clinical data for Sarepta Therapeutics’ (SRPT.O) muscle disorder drug, as well as a number of significant regulatory delays, investors said.
More broadly, Todd said, many health stocks have been out of favor as investors have centered attention on bank, energy and other stocks as the U.S. economy reopens, while there remains some lingering concern about biotech and pharma stocks due to the potential for increased U.S. regulation on prescription drug prices.
“The space has kind of been in this purgatory really since the election,” Todd said.