Listen to this article
Few equity market investments have proved more profitable since the financial crisis than buying shares in the US biotech sector. With the broad US equity market bull run now well into a seventh year, nothing comes close to matching the stunning rise of biotechs.
The sector, which is already up nearly 30 per cent this year, has handily outpaced both the Nasdaq Composite Index and the S&P 500, during the current bull market. Since March 2009, the Nasdaq Biotech Index, with a market capitalisation now of $1.04tn, has risen 570 per cent, while the Nasdaq Composite is up just over 300 per cent.
Not until 2013 did the Nasdaq Biotech index finally eclipse its dotcom bubble peak from 2000, illustrating a shift among investors’ attitude towards the sector. Against the backdrop of a modest US economic recovery and a lack of pricing power for many established companies, the high growth prospects of biotechs became very appealing.
The expectation of new blockbuster drugs that bring in billions in profitable sales and the feverish rush to buy up companies creating those drugs has driven the sector’s stellar growth.
Investors have been reassured by a steady uptick in the number of new drugs being approved by the Food and Drug Administration, which reached a record 41 last year, but analysts point to M&A as the main pillar of support for the sector this year.
This year, Anacor Pharmaceuticals has led the sector, boosted by positive trial data for its new skin ointment, while Synergy Pharmaceuticals has been lifted by similar hopes for its gastrointestinal drug.
Horizon Pharma, up 174 per cent this year, is an example of an acquisitive biotech business that has used financial manoeuvres as much as scientific innovation to boost its performance.
Last year, Horizon moved its corporate headquarters from Illinois to Ireland to reduce its tax bill, a few months ago it acquired Hyperion for $1.1bn, and now it is currently locked in a $3bn fight to buy Depomed, which is trying to fend off Horizon’s advances.
Over the sector’s long bull run since 2009, it is Jazz Pharmaceuticals, a company known for buying rivals and licensing drugs, rather than developing its own, that stands out as by far the best investment.
The US-listed company, which has been based in Ireland since its tax-driven acquisition of Azur Pharma in 2011, has pushed its adjusted profits up from a $1.5m loss in 2009 to $528m last year.
Get alerts on US equities when a new story is published