HighVista’s Andre Perold How to Pick Biotech Stocks

The Nasdaq Biotechnology Index is off 3% over the last year (as of end of day on July 2) and nearly flat year to date, while the iShares Biotech exchange-traded fund has slipped 4% over the past year, including a year-to-date drop of nearly 3%. However, some investors continue to hold onto the sector despite that weakness.

In an interview with Hedge Fund Alpha, Andre Perold, Co-Founder, Partner and Chief Investment Officer at HighVista Strategies, explains that the index and ETF been weak due to negative sentiment around health care in general - linked to the nomination of Robert J. Kennedy Jr. as secretary of Health and Human Services.

“They began the decline right after the election, when it became clear that RFK would be the head of Health and Human Services. He's anti a lot of stuff that people really care about - including vaccines - and I think it scared a lot of people,” Perold explained. “You also had the resignation of the top vaccine official at the FDA, who wrote a scathing piece about RFK, and that really shook the market.

Founded in 2004 and based in Boston, HighVista manages $10.5 billion on behalf of investors around the world.

Problems for development-stage biotechs

Looking at the health-care sector as a whole, he said development-stage firms got hit the hardest because they need the FDA, while commercial-stage companies performed in line with other equities. However, RFK’s appointment as secretary of Health and Human Services isn’t the only thing weighing on biotech stocks.

“It's also true that small stocks more broadly have performed poorly,” Perold added. “There are some 600-700 biotech stocks, and the vast bulk of them are small cap and quite illiquid.”

He explained that risk sentiment among investors is down right now, so they’ve been taking money out of small-cap stocks, including biotech names.