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Generalist’s Guide to Vetting Smid-Cap Biotech: Bear Market Edition

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Cowen Biotech fielded many generalist calls through 2020, but by early 2021, the phones went silent: Biotech entered an extended bear market. Now it looks stable and poised for a comeback. Why should generalists care? Growing index weighting, long innovation cycles, and attractive valuations. In our full report, we provide a guide to analysis of these companies: valuation, PoS, market models, and a curated list of promising coverage companies.


Biotech investors remain cautiously optimistic for the performance of smid-cap biotech through the end of the year, believing the bottom was reached for the biotech bear market in June. Smid-caps outperformed for a significant portion of “The Great Biotech Bull Market” of 2014-2020 and remained poised to do so again due to a continuous innovation cycle. Still, volatility is expected as the broader markets grapple with rising interest rates. Why bother figuring out how much these stress-inducing, volatile companies might be worth? We believe generalist investors will need exposure, and current compressed valuations represent an attractive entry point. I.e., generalist exposure increases as the sector’s weighting within small- and mid-cap indices grow. Our report includes an overview of the major inputs and considerations for analyzing smid-cap biotechs.

Our full report features an analysis of the increasing generalist exposure to the sector through the indices, a list of Cowen’s most promising smid-cap biotech names appropriate for generalist review, and the bones of how the Cowen biotech team approaches analyzing smid-cap biotech.


Chart trends strongly suggest that biotech may be at trough levels. Biotech’s innovation cycle continues, and a cluster of M&A appears to be giving support despite rate hikes. Given a wealth of catalysts through the end of the year and increasing index weighting, generalist investors may be forced to become more involved in higher-quality sector names, and soon. Generalist funds could even serve as an ember for the next biotech bull market.

A steady stream of catalysts is expected into YE22 and next year, which we believe will be value-creating for shareholders.

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