Biotech Stocks Set for More Pain After Worst April in Decades

The market shift to safer bets and regulatory concerns have made April the grimmest on record. Some are comparing it to the 2000 tech crash, with the worst yet to come.

The Russell 2000 is set to close out their worst April since at least 1997 when they started tracking returns. The sector has fallen more than 600% from its February 2021 peak.

The 2000 tech crash was led by companies at an early stage of development with little to show in the way of revenue. Retail traders spurred the exuberance that drove both sectors to all-time highs. The market may not reach a low until next fall if the early-stage drug developers follow a similar pattern.

It matches the Zeitgeist of the Nasdaq 2000 because it is very early in the development of therapeutic assets.

The dotcom bubble comparison may not be the whole story. The tech bubble analogy was originally shared as a worst-case scenario in January, but the parallels have only grown from there.

It creates its own risks when you have a lot of value destruction.

The XBI, a closely-watch fund that tracks the sector, has had its biggest April drop since it began.

The sell-off historically hits rock- bottom when the ratio of inflows to outflows is less than 0.3, according to Christopher Raymond. The last time it was that low, the XBI rallied in the months that followed.

The analysis shows that the breadth ratio fell this week, still not signaling an end to the collapse.

We're in the later stages but I don't think we're done. The chief portfolio manager of the Jacob Discovery Fund says that there isn't a quick fix to the problem. The fund posted 5-year returns that are in the top 99%, but it has taken a beating recently.

The sector won't find its bottom until the larger established drugmakers buy up their smaller peers. Chervitz says to focus on companies with experienced management teams, more than one product in the pipeline, and those that have been validated by partnerships or big pharma investments.

Chervitz said there was more pain ahead to cleanse the system.

With assistance from Matt Turner.