Biotech investor: ‘None of us were as smart as we thought we were’ by Lydia Ramsey – Business Insider

Biotech investor: ‘None of us were as smart as we thought we were’

Screen Shot 2016 01 15 at 4.50.33 PMInvesting.com

It wasn’t that long ago that investors couldn’t get enough of biotechnology stocks. Now it seems as if they can’t get out of the sector fast enough.

The Nasdaq biotech index has dropped by about 17% in the first two weeks of 2016. This comes after it more than doubled in the previous three years during an investment boom that saw record IPO and venture-capital investment volume and a surge in takeovers.

A key part of this is the decline in the broader market. When investors are selling everything, relatively risky investments will drop further and faster, explained Bryan Roberts, a biotech investor who is a partner at the venture-capital firm Venrock.

“Investors get skittish when they see risk assets showing signs of deterioration,” he told Business Insider. “And biotech is absolutely a risk asset.”

In other words, this doesn’t speak to some kind of breakdown in the prospects for biotech companies or drug development, which can take as long as a decade and cost upward of $1 billion.

But it is a reminder that investors who made a bundle betting on the sector in recent years were also riding a wave of risk-taking across the board.

“None of us were as smart as we thought we were for the last three years,” Roberts, who has invested in the sector for 18 years, said.

There are some factors specific to the biotech sector that may be weighing as well. It was a letdown, for example, that there wasn’t much in the way of big news at the JPMorgan Healthcare Conference. The annual event is typically a great time for the industry, and in past years it has been loaded with news that spurred stock gains.

Bryan RobertsCourtesy VenrockVenrock’s Bryan Roberts.

(A massive takeover was struck at the start of the event — Shire’s $32 billion takeover of Baxalta — but it had publicly been in the works for nearly six months by the time it was announced.)

The timing of the market sell-off is particularly bad news for one group of companies. As in 2015, the JPMorgan conference was preceded by a wave of filings for initial public offerings and follow-on share sales.

The companies begin the IPO process right before the conference so they are set up to put a price on their shares by the end of January, Roberts said.

“But what nobody could predict was the downdraft in the market,” he said. “They all flipped confidential before you knew what the market was doing that Monday. And as you will note, no one has flipped to a public filing since.”

Investors already had reason to be wary of biotech IPOs. Half of last year’s IPOs — in which companies raised more than $5 billion — were flops as far as share performance is concerned, according to Bloomberg’s Zachary Tracer.

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