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Politics aside, 2020 could be a good year for bringing back generalists

An appetite for risk has plenty of investors considering biotech again in 2020. What elections?

After largely being out of biotech stocks for four years, generalist investors have shown signs that they are ready to dip their toes again in 2020. The fourth quarter surge, and a spate of 2019 M&A deals, has put biotech back on the FOMO list, particularly regarding large cap biotechs, which are at their most attractive valuations in a decade.

Of course, the elections are the overhang. But they are what they are, and while high on every buysider’s risk list, there’s a feeling generalists might weather the uncertainty, since more conservative drug prices have already been baked into valuations.

“I think there’s more upside risk than downside risk,” said Carl Harald Janson, lead investment manager at International Biotechnology Trust.

He and others think fear of missing out could be a bigger influence than the drug-pricing rhetoric coming from both sides of the aisle and all corners of the campaign trail.

“The appetite for risk has certainly come back.”

Phil Capen, BMO Markets

 

There was a split among the 14 investors and bankers interviewed by BioCentury on if and how far the strong performance of late 2019 will carry into 2020.

In 4Q19, the indexes climbed 18-25% and the sector recorded five M&A deals valued at more than $1 billion -- factors some believe will draw new money into the sector (see Table: “Big Deals in 4Q19”).

Others think the 2020 politics will offset any positive momentum.

But there’s broad agreement that companies will again flood the market with financings this quarter, aiming to raise money ahead of an expected pre-election lull. While this could put downward pressure on valuations, with plenty of specialist capital available, good companies should be able to raise the funds they need.

Table: Big deals in 4Q19

Five acquisitions announced in 4Q19 value the target companies at over $2 billion each in cash. Source: BCIQ: BioCentury Online Intelligence

 
Strong finish

Sentiment heading into 2020

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