Biotech Sector Lost About $85 Billion in Worst Week in a Year

(Bloomberg) -- The Nasdaq Biotech Index lost $85 billion this week in its worst drop in a year as funds saw the most money flow out of the sector since last March.

The benchmark for biotechnology stocks is on track to close out its third weekly loss in a row.

President Joe Biden said this week that the U.S. should have enough Covid-19 vaccines for every adult by May. While investors weigh the need for more medicines and vaccines to address the pandemic, they are using last year's profits to snap up shares in some of 2020's more beaten-down industries like banks, travel and leisure. Rising interest rates have also hurt the growth-oriented biotech sector.

In the weekly period that ended March 3, $569 million exited the 127 biotech mutual and exchange-traded funds tracked by Piper Sandler's Christopher Raymond. Still, with fund flows still positive for the year, “it's too soon to sound the alarm, he said in an interview.

“There are moments when there is a very fundamental policy shift, like drug pricing that makes a generalist investor want to shy away from biotech and we haven't seen any of that yet,” Raymond said. Biden hasn't gone after the sector with the harsh rhetoric of the prior administration, he said.

ETF Outflows

Even so, the iShares Nasdaq Biotechnology ETF (IBB) saw about $88 million flow out this week. The Health Care Select Sector SPDR Fund (XLV), which is more weighted to managed care and large drugmakers, saw $242 million in capital leave in the week and has lost $1.68 billion so far this year.

Cathie Wood's $8.6 billion ARK Genomic Revolution fund (ARKG) saw the flight of more than $400 million in funds. The ETF is down 10% this week as favored holdings like Teladoc Health Inc., Pacific Biosciences of California Inc. and Crispr Therapeutics AG tumbled.

Companies developing Covid-19 medicines and follow-on vaccines were among the week's worst performers amid the approval of a third vaccine in the U.S. and a series of deals to supply the shots. Vir Biotechnology Inc. and Novavax Inc. lost about a third of their value this week, while Altimmune Inc. sank by about 21%.

“Last year people were throwing money at almost any company that could come up with some type of a Covid-19 vaccine or drug,” said David Wagner a portfolio manager at Aptus Investments. “Not everybody is going to succeed.”

Now investors are turning away from 2020 winners and putting some of those gains into more cyclical stocks, Wagner said. The saturation of the vaccine market is also having an impact, with Pfizer Inc., Moderna Inc. and Johnson & Johnson expected to produce enough vaccine for the U.S. by May.

“All those other biotechs that were trying to find a vaccine, we have enough supply, we don't need you anymore,” he said.

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