ASX biotech shares have, as a whole, had a remarkably poor run over the last 6 months.
Here's what we mean.
Over the past 6 months, the All Ordinaries Index (ASX: XAO) is down 2.2%. Not what you'd like to see. But not close to gut wrenching either.
Now let's looks at some large-cap and small-cap ASX biotech shares.
First up, industry heavy weight CSL Limited (ASX: CSL), with a market cap of $129 billion, is down 13% over 6 months.
Meanwhile the Imugene Limited (ASX: IMU) share price has lost 41%, while fellow ASX biotech share Immutep Ltd (ASX: IMM) is down 33% over that same time.
Moving to the smaller, and more speculative end of the spectrum, Avecho Biotechnology Ltd (ASX: AVE) shares are down 40% in 6 months; the Volpara Health Technologies Ltd (ASX: VHT) share price has lost 43%; and Chimeric Therapeutics Ltd (ASX: CHM) shares are down 55%.
Then there's EBR Systems Inc (ASX: EBR). EBR Systems only listed on the ASX on 24 November last year. While it's up 163% since listing, most all of those gains came on the first days of trading. Since 25 November, shares in EBR system are down 32%.
And it's not just ASX biotech shares under pressure.
Over in the United States the Nasdaq Biotechnology Index is down 25% in 6 months.
What's next for ASX biotech shares?
Chimeric CEO Jennifer Chow said she's hopeful that a few things could turn the cycle around.
According to Chow (quoted by The Australian Financial Review):
Obviously, the world settling a bit. But, for biotech, a lot of development was slowed because of COVID-19 … it had an impact on clinical trial registrations … but patients are getting back to centres and hospitals are focused on clinical trials again. There was also a slowing down in M&A at the end of last year … and that's starting to pick up again.
Matt McNamara is the chief investment officer at Horizon 3. With a 3-to-5-year investment horizon, the recent sell-off isn't keeping him awake:
I look at the positions we hold and none have changed in terms of their investment thesis. I don't see a problem with any of the companies … We're patient investors and ride out the bumps. I think there's good buying at the moment.
Horizon holds ASX biotech shares EBR Systems, Volpara Health and Avecho Biotechnology. McNamara said investors should look at "the prospects of the market they're breaking into, the experience of the management team, and if they have the skills around the board."
Why the small-cap space may be in for more pain yet
Rory Hunter, portfolio manager at SG Hiscock draws a sharp distinction between well-established ASX biotech shares and microcap newcomers.
According to Hunter (quoted by the AFR):
We've gone from this euphoria phase to the opposite end of the spectrum, and that's why there's been so much value destruction. You're going to see a flight to quality. People have lost a lot of money in some of these companies that came to market last year. It'll remain really challenging for quite some time.
We are looking to redeploy capital into companies that are already in the commercialisation phase. When we get a view on the better market conditions, we'll also look at those business that are in phase three trials … and have significant addressable markets.
