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Why Is BridgeBio Pharma, Inc. (BBIO) Among the Worst Performing Biotech Stocks in 2024?
We recently compiled a list of the 10 Worst Performing Biotech Stocks in 2024.In this article, we are going to take a look at where BridgeBio Pharma, Inc. (NASDAQ:BBIO) stands against the other biotech stocks.
Biotechnology Stocks: Navigating Volatility Amid Market Fluctuations and Industry Growth
Biotechnology stocks are among the most volatile in the market due to their high risk. The outcomes of FDA clinical trials and the effectiveness of their therapies in the real world might cause significant fluctuations in their pricing. The introduction of COVID-19 vaccinations in 2020 caused the biotech industry to soar to prominence. As Big Pharma started investing in acquisitions, investor interest increased in late 2023 and early 2024. But the enthusiasm faded, and for months, biotech stocks did not move. Few M&A transactions and initial public offerings (IPOs) broke the otherwise quiet period in the second quarter, which saw a steep fall in biopharma deal activity. Following a busy first quarter in which pharmaceutical companies finally began using their enormous cash reserves for acquisitions, there was a slowdown.
However, the reaction has been unexpectedly subdued, even though the industry was expecting a federal interest rate drop. The Federal Reserve lowered interest rates by half a percentage point earlier in September, which was a bigger drop than anticipated. Although it's a good step, Mizuho Securities analyst Jared Holz thinks it's unlikely that there will be a spike in fundraising, M&A transactions, or IPOs. A lot of biotech businesses have canceled programs and made large layoffs to save money in an attempt to survive in volatile markets. Although certain scientific projects may be revived as a result of the rate cut, Holz thinks it's hard to gauge the effect. However, since the rate decrease, small-cap stocks have had "a bit more momentum," the analyst noted, which is encouraging for the biotech industry.
Contrary to Holz's perspective, 2024 has started off strongly for the biotechnology sector due to a rise in mergers and acquisitions as well as anticipations of falling interest rates. Therefore, estimates suggest that the worldwide biotechnology market might increase at a compound annual growth rate (CAGR) of around 14% from 2024 to 2033, reaching an astonishing $5.7 trillion. The market for agricultural biotechnology is also expected to develop at a 7.9% compound annual growth rate (CAGR) and reach $232 billion by 2032.
Despite the recent mixed results, Morningstar strategist Karen Andersen believes that biotechnology has a lot of potential and space for growth. Here is what she said about the sector:
“We still see tailwinds for the industry going forward. Smaller-cap names are still targets for acquisitions by bigger biopharma firms, and a wave of acquisitions has continued since late last year, particularly focused on oncology and immunology. We think obesity acquisitions are likely going forward, as big biopharma can bring development and commercialization expertise to multiple programs in midstage trials at small biotechs. Second, on a more fundamental level, new technologies and launches in new therapeutic areas are poised to boost productivity and drive biotech performance.”
In view of this, let's take a look at some of the worst performing biotech stocks.
Our Methodology
For our methodology, we focused on stocks with a market capitalization exceeding $4 billion and evaluated their year-to-date (YTD) returns. We then identified stocks with poor YTD performance and ranked them according to their year-to-date returns, as of the close of October 22.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of scientists in white lab coats reviewing lab results in a research facility.
BridgeBio Pharma, Inc. (NASDAQ:BBIO) is a commercial-stage biopharmaceutical company focused on developing transformative medicines for patients with genetic diseases and cancers. Its primary business involves discovering and testing treatments for rare genetic disorders and cancers with clear genetic drivers.
BridgeBio Pharma, Inc. (NASDAQ:BBIO)'s revenue boost from licensing agreements highlights its ability to monetize intellectual property and forge strategic partnerships. The company's diverse pipeline of genetic disease treatments serves as a potential catalyst, with positive clinical trial results expected to impact its prospects. Additionally, in August 2024, BridgeBio formed GondolaBio, a joint venture focused on early-stage programs, securing $300 million in financing from investors to support drug development.
In Q2 2024, BridgeBio Pharma, Inc. (NASDAQ:BBIO) reported revenue of $2.2 million, a slight increase from $1.6 million in Q2 2023. While this revenue growth is minimal, the company improved its net loss to $73.5 million from $157.9 million, primarily due to a $126.3 million gain on the deconsolidation of a subsidiary.
As of June 30, 2024, BridgeBio had $587.2 million in cash and equivalents, up from $392.6 million at the end of 2023, mainly from net proceeds from a term loan and equity financings. However, the company's total debt stood at $447.13 million, raising concerns about financial stability.
BridgeBio's stock performance has struggled due to several factors, including inconsistent revenue growth, ongoing significant losses, high operating expenses—especially in R&D—and a substantial debt burden that pressures financial flexibility and increases risk. With a year-to-date decline of over 35%, BBIO is one of the worst performing biotech stocks on our list.
Overall BBIO ranks 2nd on our list of the worst performing biotech stocks in 2024. While we acknowledge the potential of BBIO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BBIO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
