NEW YORK (GenomeWeb) – Amid a recent downturn among biotechnology stocks, shares of the top eight publicly traded RNAi and microRNA drug developers have fared particularly poorly, shedding an average of 37 percent of their value from their year-to-date highs.
This compares with a roughly 19 percent decline in the Nasdaq Biotechnology Index (NBI) and an approximately 16 percent drop in the NYSE Arca Biotech Index (BTK) from year-to-date highs.
But to Piper Jaffray analyst Edward Tenthoff, this trend does not portend continued trouble for the field, but rather reflects a kind of steadying of the ship that will allow the biotech market to continue rising over the next few years.
During 2013, the BTK climbed about 46 percent while the BTI surged more than 60 percent. Driven by advancements in delivery and a handful of success stories in early- and mid-stage clinical testing, RNA therapeutics developers have enjoyed even more significant increases in their valuations.
By the end of 2013, for instance, Alnylam Pharmaceuticals saw its market capitalization surge past $3 billion. And even smaller players got in on the action during last year, with the market caps of Tekmira Pharmaceuticals and RXi Pharmaceuticals doubling and tripling, respectively.
When it comes to biotech, "the sector was just on fire," Tenthoff, who covers Alnylam and Arrowhead Research, told Gene Silencing News. And RNAi stocks have been even hotter, outperforming the overall industry.
But as is common to Wall Street, companies with outsized gains experience similarly dramatic pullbacks during times of profit taking and consolidation in gains, he noted. "The same premium to the upside is similarly reflected to the downside."
As a result, the share price increases among RNAi and miRNA firms that continued into the early part of 2014, peaking around late February/early March, have decreased in dramatic fashion.
Alnylam's shares hit $93 apiece in mid-January, but three months later, they have plummeted more than 40 percent, closing at $53.86 at the end of last week.
Regulus Therapeutics, a former joint venture of Alnylam and antisense firm Isis Pharmaceuticals, experienced a similar decline. Shares of the miRNA drug developer reached $11.64 around the end of February but have since fallen to just under $7 — a 40 percent loss.
Meanwhile, Rosetta Genomics, which primarily develops miRNA diagnostics but has recently reiterated its commitment to therapeutics, has seen its stock fall to $3.80 from a late March price of $6.55.
Although reaching human trials is a key inflection point for any drug developer, such an achievement has not prevented selloffs by investors in RXi, which has seen its stock price erode 43 percent from a high of $6.17 around the end of February to $3.51 last week.
The same goes for Arrowhead, which recently advanced a hepatitis B treatment into Phase II testing but whose stock price has lost half its value since hitting $26.57 in early March. It now trades at around $12.77.
The biggest loss hit Dicerna Pharmaceuticals, which completed a $90 million initial public offering in January, pricing its shares at $15 each. Shortly thereafter, the stock soared to $46, but has now tumbled more than 60 percent to around $16.40.
And it is not just US-traded RNAi firms that have struggled with falling stock values.
Shares of the expressed RNAi drug firm Benitec, which trades on the Australian Stock Exchange, have fallen 47 percent this year, from A$2.24 to A$1.19. Silence Therapeutics, which trades on the London Stock Exchange, has suffered a 31 percent loss on its shares, which went from 375 pence in early March to 258.88 pence at the end of last week.
But overall, Tenthoff is sanguine about the biotech sector, and RNA medicines in particular, noting that he believes that "we are still in the middle innings of a multi-year biotech bull market. This period of consolidation, while painful, is necessary for biotech names to go higher."
Yet he thinks investors will be increasingly careful where they put their money.
"In the past, it's almost been indiscriminant performance," with advances in the sector benefitting all companies, he said. "Going forward … I don't think it's going to be the same situation … where a rising tide simply lifts all boats."
Instead, stock gains will more closely reflect the achievements, such as positive clinical data, of specific companies.
This holds true, too, for potential initial public offerings, Tenthoff added. In terms of going public, "we're going to see greater competition, greater selectivity by investors." Some IPOs will be successful but others will fail, and it will come down to the quality of the companies looking to float its shares.
Currently, there is one company in the RNAi/miRNA space that has filed to go public — Microlin Bio, which earlier this month said that it expects to sell its shares between $10 and $12 each on the Nasdaq. Tenthoff does not cover Microlin and did not comment specifically on the firm.