No bounceback for biotech in 2016

Biotech stock indexes dropped sharply last summer, sparking debate about whether a “biotech bubble” had burst. A new report from EvaluatePharma, a U.K.-based industry analyst, answers with a definitive “yes.”

“If anything can be gleaned from the first half of 2016, it is that the peak is in the past,” writes Evaluate analyst Amy Brown. “Any hopes that the declines of the second half of 2015 might be reversed must now be put to bed, and the highs of last July be consigned to the record books.”

By the end of the first half of 2016, Evaluate notes, the Nasdaq biotech stock index had fallen 35% from its July 2015 peak. The value of initial public stock offerings also plummeted, from $1.8 billion in the second quarter of 2015 to $608 million a year later.

Meanwhile, venture capital investment, which topped $10 billion last year, appears on track for a downturn, coming in at $3.6 billion for the first half of 2016, according to Evaluate.

Merger and acquisition activity is also headed down. Last year saw 278 deals valued at a total of $191 billion. The first half of 2016 brought 85 deals valued at $67 billion.

The slowdown should be viewed in the context of “a sector emerging from a spectacular bull run, which was for a time fueled by almost unchecked investor exuberance,” Brown writes. She cautions that biotech companies will now need clinical and regulatory wins to demonstrate that valuations shouldn’t drop further.

Increased scrutiny of drug pricing will be a major challenge, according to the report, especially in the U.S., where the issue will likely spell trouble for the sector regardless of the outcome of the upcoming presidential election.