Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

More than just about any other sector, biotech demands faith from its investors.

Right now, belief appears to be strong. Faced with a string of worrying news from prominent biotechs in the past two weeks, investors have largely been willing to give the benefit of the doubt. That's a big shift from 2016, when any weakness was immediate cause for a huge selloff. 

Comeback
Biotech shares are still well short of their 2015 heights, but they're beginning to climb
Source: Bloomberg

These recent failures are significant. Alnylam Pharmaceuticals Inc. on September 7 paused a hemophilia drug trial after a patient death -- not the firm's first safety scare. Sage Therapeutics Inc. on Tuesday reported a bruising failure for a final-stage trial of its most advanced medicine. And Wednesday morning, Amicus Therapeutics Inc. reported a final-stage failure on a rare-disease drug and said it was abandoning the medicine.

But market reactions to these disappointments have been relatively muted. Amicus shares actually rose on Wednesday despite its bad news.

Some of this can be chalked up to specific characteristics of these companies and events. None of these firms are one-drug wonders, and investors likely place more emphasis on other projects. In contrast, Otonomy Inc. shares tumbled more than 80 percent in late August after it reported a failure on a drug on which it heavily depended.

But it's hard not to see a trend toward leniency for biotech firms, even though they have already seen their share prices skyrocket this year. 

Risk, Eh
Investors don't seem too fazed by a recent wave of research setbacks for biotechs
Source: Bloomberg

One of the best examples of the sentiment shift is Alnylam. Back in 2016, it stopped development on a leading drug due to a different safety issue, and its already weak shares plunged nearly 50 percent. In contrast, Alnylam shares fell nearly 16 percent after it announced its trial pause last week, but have since recovered nearly 10 percent. It's true that last year's news was much more significant than last week's. Still, the fact that investors are mostly shrugging now says a lot. 

The Bad Old Days
The last time Alnylam had a big safety issue, it lost half of its already depressed market value
Source: Bloomberg

The market's attitude these days is clearly "risk-on." But investors should remember biotech sentiment is fickle, and it can be hard to predict which failures will be shrugged off and which will be seen as radioactive. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net