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After Long Struggle, Market Love received by Biotech Industry

Short sellers were burned when unloved Biotech stocks had their greatest week since November, spurred by a contentious regulatory decision and a legion of Reddit supporters. Investors are now reconsidering their position in the sector. It was catnip for the Reddit crowd, as Biotech had been trailing the overall market for the past three months and was full of businesses that had been the target of short-sellers.

Indeed, the price action wreaked havoc on the health-care industry, as shorts on Clover Health Investments Corp. lost roughly $465 million in a single day as the stock nearly doubled. The changes weren’t only about punishing shorts or inexperienced traders. Two of three critical updates that have been heralded as the catalyst for the widespread restoration of investor interest were sent to Biotech experts.

This includes Biogen Inc.’s approval of an Alzheimer’s disease medicine by the Food and Drug Administration. Despite mixed clinical studies, the FDA on Monday approved Aduhelm, the first new drug for the disease in decades, surprising analysts and boosting the sector. The $11 billion iShares Nasdaq Biotech ETF (IBB) saw more than 15 million shares traded daily, the most since June 2017. The index was up 6% at the end of the week.

It wasn’t all good news for these pharmaceutical companies. The rise was muted by Aduhelm’s $56,000 per year price tag and a setback for Vertex Pharmaceuticals Inc. The expense of Biogen’s medication rekindled fears of a regulatory crackdown on drug pricing. At the same time, Vertex revealed that it had suspended research of a liver disease treatment it said was unlikely to provide patients with a therapeutic benefit. The drug developer’s stock fell 11% on Friday, making it the lowest performance among large-cap Biotech, with a year-to-date loss of 18%.

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