Small-Cap Biotech Stocks Are Having a Rough Year, But That Could Change in a Heartbeat

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While the world’s leading biotech companies — churning out Covid-19 vaccines and treatments — have hit record share prices, their small-cap rivals have been sinking. But some analysts say the latest figures suggest a bargain in the sector.

Alone In The Red

Pfizer’s share price hit a record high for the first time in 20 years this month, topping $48, while vaccine partner BioNTech and rival vaccine producer Moderna have witnessed triple-digit gains in 2021. But all that success overshadows the struggles of other biotech stocks:

  • While the Nasdaq Biotech Index is up 8.7% this year, that’s mostly thanks to Moderna’s triple-digit growth. The SPDR S&P Biotech ETF, which gives equal weighting to companies (offering a more complete picture of small caps), has fallen 13%.
  • The healthcare sector is the only sector in the red this year on the Russell 2000 Index, which tracks small-cap stocks across several industries. Small-cap healthcare stocks are down 8.7%, while utilities are up 3.8%, energy 11.9%, real estate 14.5%, financials 19%, and consumer services an impressive 25.2%.

Playing Catch-Up: Many analysts, however, think the tide could turn soon for underperforming biotechs. That’s because, historically, successes at larger biotech companies have been followed by the emergence of smaller rivals, as was the case following downturns in 2015 and 2018. “This is like being a kid in a candy store,” Federated Hermes senior portfolio manager Tom Brakel told Bloomberg News of bargain biotech stock prices.

Next Up: One name that’s already popped is Cassava Sciences. The company, which reported positive results for Alzheimer’s treatment trials, has grown 1,500% this year after bigger rival Biogen earned FDA approval for its own treatment. Others poised for potential growth include Syros Pharmaceuticals, which will release new cancer treatment data later this year, and Karuna Therapeutic, which has had promising trials of a new schizophrenia drug.