Market Update

Uncommon truths - What can stop Biotech?

Uncommon truths What can stop Biotech?

The biotech sector has generated stellar returns since its inception and we view it as a strategic pillar of our model allocations. However, the growth advantage is not what it was and we fear the short-term effect of rising bond yields.

If the early 1970s marked the birth of biotechnology, with the first genetically engineered organism (by Boyer and Cohen), and 1976 saw the first biotech company (Genentech, set up by Boyer), the sector has since been a profitable venture for investors.

For example, over the last 35 years, the Datastream US Biotechnology index has increased by a multiple of 615 (based on the total return index, measured from February 1986 to February 2021, as of 18 February). By comparison, the broad US market, and the pharmaceuticals and technology sectors have increased by multiples of 47, 63 and 74, respectively (all based on Datastream indices). That suggests an annualised total return of 20% over those 35 years for the biotechnology sector (versus 12% for the US market as a whole and 13% for the pharmaceuticals and technology sectors).

That is an impressive return for the biotechnology sector, though admittedly with roughly twice the standard deviation of monthly returns experienced by the total market and pharmaceutical sector indices (and 30% more than for the technology sector). As usual, there are no free lunches: those seeking the higher returns offered by biotechnology have had to be willing to accept greater volatility.

Can the sector continue to produce such strong returns? We can imagine three reasons why it wouldn’t: first, if there is no room for further innovation; second, even if there is, the regulatory environment may change and/or sector valuations may have already priced-in a lot of innovation and, third, over the next few years, economic recovery and rising bond yields may penalise “growth” sectors such as biotechnology.

Related articles

success failure

Keep up-to-date

Sign up to receive the latest insights from Invesco’s global team of experts and details about on demand and upcoming online events. 

Keep up-to-date

When you interact with us, we may collect information about you which constitutes personal data under applicable laws and regulations. Our privacy notice explains how we use and protect your personal data.

If your interests change, you can update your preferences at any time.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Like what you see?
Hear first about events and get insights from our global network of investment and policy experts
Sign Up

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

  • All data is as at 18 February 2021 unless otherwise stated.

    This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.