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Small Cap Biotech Playing Catch Up with Industry Leaders

This year, Small Cap Biotech firms have lagged behind their larger competitors, who have been able to serve the globe with Covid-19 shots and therapies. Pfizer Inc. soared to new highs after the White House announced fresh recommendations on booster injections last week, while its vaccine partners BioNTech SE and Moderna Inc., both of which manufacture viral vaccines, have had triple-digit gains this year.

Small Cap Biotech companies, on the other hand, are down for the year by many measures, but analysts and investors expect this segment of the industry to catch up soon. For one thing, historically, the larger companies have led the way in biotech stock growth, with the remainder of the sector trailing behind. Positive clinical trial findings and clarity from Washington on market-moving topics such as mergers and acquisitions and medication pricing regulation are two potential catalysts for small-caps in the coming months.

Because of Moderna, the market-weighted Nasdaq Biotech Index is up 8.7% year to date, while the SPDR S&P Biotech ETF, which tracks the equal-weighted S&P Biotechnology Select Industry Index and is viewed as a proxy for small caps, is down 13%. The health-care industry is the only one in the Russell 2000 that has lost money this year, falling 8.7%.

According to Oppeinheimer analyst Hartaj Singh, the recent underperformance is due to increased competition for investors’ funds. Those who follow biotechs have seen a flurry of initial public offerings, dividing their attention between them and a bevvy of other biotechs. According to Bloomberg data, July was a record month for the number of these deals in the United States. Generalists, particularly significant players working on coronavirus treatments, have shifted their focus to safer bets. Some investors consider companies like BioNTech and Moderna as a simple way to generate money.

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