Analysis sees brighter times ahead for biotech
Will we be able to breathe life into biotech stocks again after last year’s dismal performance? At least that’s what Copenhagen-based Sunstone Life Science Ventures believes. The investment company has analysed historical stock market data from a number of biotech companies. Their opinion is that there is reason to believe in a comeback.
2022 was a difficult year for the stock market in general and for the biotech sector in particular. We saw major declines, especially in shares of small and medium-sized biotech companies. The fall in the share prices meant that a large number of companies in the sector were traded at a negative technology value – i.e., that the companies’ market capitalisation was below their current cash position. Read BioStock’s article on the subject here.
Strong negative trend for biotech since 2021
The Danish investment company Sunstone Life Science Ventures has taken a closer look at the situation. They highlight that the declines are rarely triggered by negative clinical data or other operational failures. Instead, several global factors are singled out as the reasons for the declines.
The investment company has conducted an analysis on historical data for a number of non-commercial biotech companies. According to them, there is reason to be hopeful about a recovery in the sector going forward. The analysis includes 275 companies that are traded on the marketplaces in Sweden, the US and in the UK. The common denominator for the companies is that none of them are in the commercial phase.
Big drops in value
In the analysis, Sunstone sees a clear downward trend in the sector, which started already in 2021. From the market listing of the shares until the beginning of 2023, half of the analysed companies have lost 75 per cent of their value.
In the group of companies whose shares performed the worst, up to 90 per cent of the market value was lost. This is despite the fact that there was rarely any negative news about the development of the companies. Sunstone notes that the companies that are furthest from having commercial assets simply have had a tough time.
Calculated on the probability of recovery
The next step in the analysis was to look at historical price movements in this type of company. Then the probability that the shares will recover was calculated and, if so, how long that recovery may take. Sunstone looked at data from 806 biotech companies and their price movements, as far back as the year 2000.
One in four biotech stocks has managed to increase fivefold from the lows, a price recovery that has taken an average of 360 days. The analysis also concluded that almost one in four companies never managed to recover more than 50 per cent of their decline. About 14 per cent of stocks increased more than tenfold from their lows, a journey taking an average of 698 days.
Sees brighter times for biotech
Sunstone sums up the analysis by saying that a biotech stock has a 29 per cent probability of quadrupling from its lows, a journey that takes the median company 258 days. In the coming 12 to 18 months, the investment company expects the majority of biotech companies to recover from the low levels prevailing at the moment.
Perhaps we have seen the beginning of the recovery in recent price gains, where we have seen Cantargia and Saniona, among others, advance strongly. While several stocks have come to life, there are many that still have some way to go to reach previous levels. Below, BioStock has listed ten stocks that have had a tough 12 months, but have shown signs of recovery in 2023.
|Company||Area||Development in 2023||Development 1 year|
|XP Chemistries||Capsaicin production||+60%||-60%|