[b]Merrill Lynch Comments On Biotechs for 2018
The biotech stocks sported a comeback in 2017 out of the penalty box in 2016 with the Nasdaq Biotechnology Index (NBI) up 21%. Despite giving back part of its gain (peaked at 29%), NBI managed to outperform S&P500 (up 19%) during 2017. Coming into 2018, most investors find biotech less exciting than FAANG in the tech world.
Long considered a hyper growth sector with high risk/high reward, biotech is experiencing growing pains. With aging product line-up, fewer blockbuster launches, large revenue bases and thinning pipeline, the large cap biotech companies increasingly look like their major pharma peers. As a result, investors are penalizing large cap biotech with lower P/E multiples than the major pharma group. Admittedly slower growth is a function of much larger revenue base and biotech stock performance is a victim of its own success with 8 large caps in S&P500 index.