Biotech Stocks

About Biotech Stocks

Biotech is the most rate-sensitive corner of healthcare, which surprises people who think of it as a science story. A developer with no revenue is worth whatever its future cash flows are worth today, and those flows are a decade out, so a move in rates reprices the whole group harder than it reprices almost anything else. The long drawdown after the last speculative peak was mostly that, not the science.

The other thing to understand is that most of these companies fail. The distribution of outcomes is brutally skewed, a handful of winners carrying an index full of write-offs, which is a strong argument for owning the sector as a basket rather than picking. Volatility here is not a proxy for risk, it is the product.

Filed alongside the developers are the suppliers selling reagents, proteins and sequencing instruments to them. That is a completely different business with actual revenue, and it is a picks-and-shovels bet on research budgets rather than on any one trial. Worth separating before you decide what you have bought.

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