BIOTECH

Is Biotech Back? The Risky Industry Is Waking Up After Low Interest Rates Cratered Investment, Dealmaking, and IPOs

Sometimes, even those doing the saving need a little help themselves. And the patient in need of a lifeline is the biotech industry — which is about to get another chance from a dose of falling interest rates. Since the end of the pandemic, biotech firms have been punished by higher interest rates and one of the worst sector sell-offs in recent history. But the industry might be about to get the breakthrough therapy needed to bring it back to life.

Bio, you alive? With interest rate cuts anticipated to tee off in September, investors are once again warming up to riskier growth stocks — reigniting talks of a biotech bounce after a rough three years, which saw the SPDR S&P Biotech ETF ($XBI) fall 59% from its Feb. 2021 all-time high. But since Oct. 2023, the index has rallied 58% — and there may be plenty more room for it to run.

• Analysts predict a softer market to spawn scores of biotech IPOs, sector upgrades, and billions in new mergers and acquisitions (M&A) — as pharmaceutical companies look to spend big on their next blockbuster drug.

• Ernst & Young says that pharma companies have a record $1T to spend on biotech deals, which it expects to be used as the industry seeks to replace $300B+ of products losing patent status.

DNA for a Comeback

There’s one notable reason to cheer for smaller biotech and healthcare names — they are well-represented in the Russell 2000. And if you’ve been paying attention, that’s good news. Unlike the tech-heavy S&P 500 and Nasdaq-100, the growth stock index primarily concentrates on financials, healthcare companies, and industrials. As a result, the bio bump has been waking the index up again.

• Healthcare companies are now the second-largest weight in the Russell, comprising 17.6% of the iShares Russell 2000 ETF ($IWM).

• As of Jul. 20, 15 out of the top 25 performers in the Russell are biotechs — led by Longboard Pharmaceuticals ($LBPH), Avidity Biosciences ($RNA), and Emergent BioSolutions ($EBS).

Stay tuned… Biotech’s big comeback has been a long time coming. After a tough 2022, as many as 320 biotech companies were on the brink of bankruptcy. And in 2023, a record year for biotech M&A came as many companies went on a firesale. With the Russell 2000 and $XBI down 11% and 39% from their all-time highs, 2024 could shape up differently and align the fates of both biotech firms and growth indexes.

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LARGECAP RECAP

🌎 Immigration Could Be the Past, Present, and Future of the US Economy

For decades, immigration has been a lightning rod in the American culture war, but it has a surprisingly uncontroversial side effect: economic growth. Despite a slowdown in birth rates, immigration is helping the US population grow — enriching the country’s economy and helping it steer clear of a recession. And in the future, it could play an even bigger role in the country.

• The Congressional Budget Office (CBO) says that 3.3M immigrants entered the US last year, a trend expected to continue through 2026 — with new immigrants adding $8.9T to the GDP through 2034.

• The Dallas Fed says that the net immigration inflow is a byproduct of border crossings, asylum applications, and other policies in the US — which have taken center stage this election year.

What does it mean? Business leaders like Elon Musk have warned that “Population collapse is a major risk to the future of civilization,” citing the impacts on pension systems, global order, and innovation. In spite of that, birth rates have continued falling — forcing more industrialized economies to grow their population and economies with foreign workers. Countries like Germany, Italy, and Portugal would have shrunk from 2000 to 2020 if not for their immigration policies. And by the 2040s, the CBO projects immigration will drive substantially all population growth in the US. This means that policies made in 2024 could have a massive impact on the future of the economy.

$46.4B in Disney Princess potential: Films like Cinderella and Snow White are 70+ years old. But the characters are still revenue-generating machines, and Elf Labs owns their IP, in addition to several other timeless tales. Now, they’re bringing these to life with next-gen AR/VR technology, subscriptions, ads, and in-game purchases. See how you can invest in Elf Labs here.*

Markets & Economy

Trump declines to commit to Harris debate: The Trump campaign has announced it will not commit to general election debates with VP Kamala Harris, citing “political chaos” around the Democratic nomination process. Harris says she’s “ready to go” for the previously agreed Sept. 10 debate. [Read]

US solar production surges 25% in one year: Solar electricity generation rose 25.3% in the first five months of 2024 compared to the same period last year. Wind and solar now produce 1.3x more electricity than coal in the US, with a 42% jolt expected for solar in 2024. [Read]

Franklin Templeton exploring Solana ETF: After launching Bitcoin and Ethereum ETFs, Franklin Templeton ($BEN) is considering a Solana-based ETF due to its “major adoption” and potential. The firm’s Ethereum ETF just launched on Cboe, with fees waived until Jan. 2025. [Read]

Business & Wealth

Olympic protestors burn French rail network: Coordinated fires on high-speed rail lines paralyzed train travel to Paris, affecting 800K people hours before the Olympic opening ceremony. Authorities are investigating the “calculated” attacks, which targeted critical cables. [Read]

European regulators reject Alzheimer’s drug Leqembi: The European Medicines Agency recommended against Biogen ($BIIB) and Eisai’s Alzheimer’s treatment, citing concerns over “serious side effects” — like brain swelling and bleeding. [Read]

Automakers face affordability crisis: Car manufacturers like Stellantis ($STLA), Nissan ($NSANY), and Ford ($F) are grappling with excess inventory and declining profits, leading to price cuts and discounts. [Read]

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DIGIT OF THE DAY

Berkshire Hathaway Sells A Total $2.3B Stake In Bank of America

While Warren Buffett will always have a special place in his heart for Bank of America ($BAC), he’s dialing back his interest. Last week, Berkshire Hathaway ($BRK-A) reduced its stake in the bank to 12.5% of its portfolio, selling 52.8M shares in total. This is the first time in four years that Berkshire has cut its stake in the bank, and history indicates that when Buffett starts selling, there’s no telling when he might stop… (RIP US Bancorp and Wells Fargo).

• $BAC has risen 23% in 2024, outpacing the S&P 500’s 15% increase. However, the bank’s provisions for bad loans grew to $1.5B in the second quarter, which led to a drop in profits.

• The recent sales may be aimed at reducing Berkshire’s stake below 10%, which would cut reporting requirements and allow for more discreet transactions.

F’d up finances: Higher interest rates and increased provisions for bad loans are straining banks, as shown by the mixed earnings reports this month. Despite better performance from regional banks, the KRE ETF ($KRE), which tracks these banks, saw $820M in outflows year-to-date (YTD). However, the XLF ETF ($XLF), tracking financial firms like $BRK-A and $BAC, experienced $3.6B in YTD inflows — indicating there’s still consumer confidence in major banks.