by an industry perspective, biotech occupies a unique hybrid position. which’s both a tech-like sector, offering secular growth potential, along using a health-care sector, with corresponding defensive characteristics.
which defensive position came under attack in 2015 as political rhetoric by both sides zeroed in on perceived unfair drug pricing. Nonetheless, there are two factors worth noting regarding biotech which may make This specific a not bad entry point for investors:
1. which will be under-owned along with undervalued: Historically, biotech has traded off fundamental drivers: drug pipelines, product growth, mergers along with acquisitions activity, along with patent protection. However, as the 2015 political imbroglio increased drug cost uncertainty, investors pulled money broadly out of health care.
More by Investor Toolkit:
How to set up a special needs trust
Health costs an ever-bigger part of retirement planning
5 risks which can crack your nest egg
which shift in sentiment has made current valuations more attractive. Over which past 20 years, the cost-to-earnings ratio of the Nasdaq Biotechnology Index has averaged 2.3 times the S&P 500 P/E ratio; today, the current ratio will be mere 1.3x, a 54 percent discount to its 20-year average (according to Thomson Reuters, as of Sept. 26, 2017.)
2. Long-term drivers are intact: Drug pipelines are notoriously challenging to predict over the short term, given the deep level of medical knowledge required, clinical testing along with regulatory review. However, two trends appear supportive over the long-term. First, advances in computational biology, bioinformatics along with artificial intelligence are permanent features helping reduce the time along with cost of drug development. Second, approval rates by the U.S. Food along with Drug Administration have steadily risen over the past two decades, climbing by 23 percent in 1994 to 89 percent along with 77 percent in 2014 along with 2015, respectively. Biotech’s historical drivers currently appear intact, producing which one of the rare sectors which enjoys long-term growth potential at a reasonable cost.