A Divergence Has Occurred In Healthcare

For the first four months of the market’s cornavirus recovery, one of the key themes was the dominance of biotech. 

In the 15 weeks from the market’s lows on March 23 until July 17, the VanEck Vectors Biotech ETF BBH rallied nearly 60% and took in inflows of nearly $84 million. The fund flew past its previous all-time high of $141 to a new all-time high of $172 thanks to massive rallies in stocks like Amgen Inc AMGN, Moderna Inc MRNA, and Regeneron Pharmaceuticals Inc REGN, all of which have made new all-time highs this summer. 

Much of this optimism has been driven by the development of vaccine and treatment candidates for COVID-19. Moderna has a $1.5 billion deal to supply the U.S. government with 100 million doses of its vaccine candidate should the drug pass Phase 3 testing. Regeneron meanwhile is working with Roche to develop, manufacture, and distribute its own coronavirus antibody cocktail. 

Compare the performance of biotech to the performance of the VanEck Vectors Pharmaceutical ETF PPH over that same period. 

The pharma trade was no slouch—BBH rose nearly 40% and took in over $21 million of inflows on the backs of stocks like AstraZeneca AZN, Johnson & Johnson JNJ and Sanofi SNY—but it had nothing on biotech from mid-March to mid-July. 

But over the past six weeks, there has been a divergence between the two. The previously high-flying biotech trade has cooled significantly, while its pharmaceuticals counterpart has moved steadily higher. 

Perhaps pausing for a breather after a rip-roaring rally, PPH has fallen 11% from its all-time high on July 20. This as a number of the fund’s top holdings have snapped back as we continue to await word on late-stage testing results. 

Pharmaceuticals, on the other hand, have held up much better on a relative basis. BBH is down a mere 1.5% since July 20 and has consolidated heavily over the past two weeks (price consolidations can sometimes foreshadow a breakout). 

Sanofi and GlaxoSmithKline GSK have received $2.1 of funding from the U.S. government for funding of their joint vaccine candidate, while Johnson & Johnson plans to start a late-stage trial for its coronavirus vaccine in late September.

BBH (purple line) and PPH (candlesticks) both rallied from March-July, one has held up better than the other in August. Source: Benzinga Pro

It’s unlikely sentiment has turned fully sour on biotech, however. PPH has still taken in nearly $17 million of new assets over the past six weeks, and according to the Wall Street Journal U.S.-listed biotech companies have already raised a record amount of money via IPOs in 2020.