Pharmaceutical and biotech stocks have seen significant declines in September. The burden of valuation on growth stocks has increased due to rising U.S. interest rates, and investor funds have shifted back to semiconductors, causing the recent momentum in biotech to fade after just a month.
According to data from the Korea Exchange on September 21, the KRX K-AI Biotech KOSDAQ index fell by 12.08% from September 1 to 18, marking the lowest return among 39 major thematic and strategic indices. The KRX Bio TOP10 index and the KRX Technology Transfer Bio index also dropped by 11.23%, placing them among the worst performers.
In contrast, the semiconductor sector showed a different trend. During the same period, the KRX Semiconductor Top15 index rose by 7.37%, while the KRX AI Semiconductor index increased by 5.14%. The gap in returns between semiconductors and biotech has widened to as much as 19.45 percentage points this month.
The weakness in biotech stocks has persisted since the beginning of the year. As of September 18, the KRX K-AI Biotech KOSDAQ index had fallen by 48.68%, and the Technology Transfer Bio index had decreased by 40.62%. The Bio TOP10 index also saw a decline of 24.78%. Major biotech companies have not escaped this downturn. Comparing stock prices from early this year to September 18, Alteogen dropped from 457,000 won to 253,500 won, a decline of 44.5%. HLB fell by 44.0%, SK Biopharm by 36.8%, and Yuhan by 32.7%. Samsung Biologics and Celltrion also saw declines of 16.9% and 11.4%, respectively.
Market analysts attribute the recent weakness in biotech stocks to rising interest rates. The U.S. Federal Reserve raised its benchmark interest rate by 0.25 percentage points this month, increasing the valuation burden on growth stocks that reflect expectations for future earnings.
Biotech companies often derive their value from future earnings generated through new drug development and technology transfers rather than current profits, making them relatively sensitive to interest rate increases. Higher rates raise the discount rate applied to future cash flows, reducing their present value, and can also increase the cost of funding needed for research and clinical trials.
Additionally, since the first half of the year, funds in the stock market have been heavily concentrated in semiconductor stocks like Samsung Electronics and SK Hynix, leaving the biotech sector thoroughly neglected. Within the industry, there have also been a series of clinical setbacks. Kolon TissueGene faced a significant drop in its stock price after failing to secure statistical significance between the treatment and placebo groups in the first trial of its osteoarthritis gene therapy, 'TG-C,' in the U.S. in July. The company maintains that the efficacy was confirmed and insists that the trial was not a failure, with results from the second Phase 3 trial expected in October.
This month, ABL Bio faced a raid by financial authorities over allegations of insider trading related to technology transfers, while Orum Therapeutics saw its clinical development of a blood cancer treatment candidate, licensed to Bristol Myers Squibb, come to a halt, leading to a sharp decline in its stock price.
Following the implementation of regulations on single-stock leveraged exchange-traded funds (ETFs) at the end of July, trading focused on semiconductors decreased, resulting in a slight rebound in biotech and KOSDAQ stocks in August. Industry analysts suggest that the rise in biotech stocks at that time was more a reaction to funds moving into a previously neglected sector rather than a change in performance.
A financial investment industry source stated, "Since the beginning of the year, funds have been concentrated in semiconductors, and individual setbacks in biotech companies have significantly weakened investor sentiment. With the added pressure of rising interest rates, a trend reversal will require stable rates and significant clinical results or major technology transfers to rekindle investor interest."
* This article has been translated by AI.
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