the market is littered with biotech stocks whose prices have fallen by more than half since the start of the year the list of big losers is long and for biotech investors more than a bit painful the fallen stocks include established midcap biotech names like bluebird bio ticker blue now down 577 on the year acadia pharmaceuticals acad down 669 and abcellera biologics abcl down 579 sarepta therapeutics srpt once a largecap name has a market value that is 71 billion less than when the year began “by midaugust family and friends were stealthily moving fragile objects out of the reach of biotech investors” said a recent note from a biotechnology analyst at cowen that widespread pain across smallcap and midcap biotech and beyond may come as a surprise at a moment when shares of moderna mrna and biontech bntx the two companies that developed the most effective covid19 vaccines on the market have climbed 2733 and 3079 so far this year respectively their skyrocketing share prices however are the exception in the sector the spdr sp biotech exchangetraded fund xbi is down 4 during a period when the sp 500 index has climbed 204 another etf that tracks biotech the ishares biotechnology ibb is up on the year but is capitalizationweighted meaning that much of its assets are dedicated to larger names moderna and biontech alone make up 135 of its portfolio and jefferies analyst steven desanctis calculated in a recent note that moderna contributed 84 of its return there have been renewed signs in recent weeks however of substantial value hiding among the biotech dross in late august pfizer pfe paid a 2038 premium over the previous day’s closing price for trillium therapeutics tril a biotech with two promising cancer drugs and earlier last month sanofi sny paid a 30 premium for translate bio tbio a messenger rna pioneer in an effort to find moreattractive bets in biotech we talked to investors and analysts who focus on the field they offered a list of interesting names including compass pathways cmps the united kingdom–based biotech company testing the chemical in psilocybin mushrooms as a depression treatment and acceleron pharma xlrn which is working on a drug for a rare cardiovascular condition other picks include yeartodate losers allovir alvr down 483 this year the genetic testing firm invitae nvta down 273 and the aforementioned sarepta down 535 close watchers of the biotech market have different explanations as to why the sector has been so weak since early february the underperformance comes after a notably strong 2020 and the major etfs that track the sector still slightly outpace the sp 500 over a twoyear window “it basically overshot during 2020” says ziad bakri manager of the t rowe price health sciences fund prhsx “the sector got a little too hot and probably got a little bit ahead of itself toward the end of last year” investors and analysts widely agree that the slump since february has something to do with confounding signals coming out of the us food and drug administration an agency that has enormous sway over the fate of the sector and one that has been without a permanent leader since president joe biden assumed office “we’ve seen a lot of uncertainty with the fda” says neena bitrittogarg an analyst at citigroup “that’s kind of bleeding into sentiment in the sector” in march analysts started ringing alarm bells about a series of unexpected fda actions after surprise moves by the agency led to sharp drops in share prices of acadia and fibrogen fgen the agency’s decision to approve biogen’s biib alzheimer’s disease therapy in june despite limited evidence for its efficacy drew widespread criticism and raised even more questions about the agency’s direction investors have also worried about a federal trade commission warning earlier this year that it intended to take a more aggressive approach toward regulating pharmaceutical mergers not to mention the resurfacing of the perennial drugpricing debate another drag on the sector has been the slow pace of biotech mergers and acquisitions after a busy 2020 the investment case for small and midcap biotech stocks often relies on those companies eventually being acquired notes alethia young an analyst at cantor fitzgerald “i think people had lost hope” she says another factor cited by ritu baral an analyst at cowen may be that the fire hose of initial public offerings in biotech has stretched investors’ capital very thin “we think it has eaten into the liquidity in the greater biotech market” baral says biotech stocks showed signs of life in late august and the spdr sp biotech rose 138 from aug 19 to sept 1 as deal making by pharmaceutical companies seems to be reviving and worries over the fda ease investors could place a broad bet on the recovery of small and midcap biotech names by buying the spdr sp biotech for investors with more ambition and patience the broad weakness in biotechnology creates opportunities to find the next breakout star at a bargain price here are five stocks highlighted by the experts we consulted ranked by market value acceleron is up 14 on the year and t rowe’s bakri says it has lots of room to grow the company is developing a drug called sotatercept to treat pulmonary arterial hypertension a rare cardiovascular condition that can become fatal over time “this is a market with a ton of value in it” bakri says in 2017 johnson  johnson jnj spent 30 billion to buy a company that focused on the disease acceleron’s sotatercept is in phase 3 trials and bakri says that the phase 2 results were very positive “the data look outstanding in phase 2” he says “the doctors are excited about it it’s a wellcharacterized market meaning there’s very little commercial risk if this works in phase 3” while clinical risk remains bakri thinks it’s relatively low “there are multiple lines of evidence that this seems to work” he says shares of the genetic testing firm invitae are down 273 this year but that hasn’t dampened eli casdin’s enthusiasm for the stock casdin founder and chief investment officer of casdin capital has recommended the stock to barron’s before including at our biotech roundtable in september 2019 the stock is up 612 since then but has fallen sharply since february along with the rest of the sector he says that the company’s fundamental business remains strong “that’s the thing that gives investors confidence” casdin says “markets correct on a macro business is still ripping on a micro and penetration rates are incredibly low oh this thing has a long way to go” invitae generated 1163 million in revenue in the second quarter of 2021 up 152 from the same quarter the previous year the company offers a range of genetic tests including prenatal screenings and tests that can help target cancer treatments casdin says that volumes and revenues have tripled over the past three years and he expects them to triple again over the next three years “i think it’s a great longterm opportunity” he says shares of sarepta dropped 513 on a single day in early january when the company shocked investors with disappointing data on a small trial of its gene therapy for a serious disorder known as duchenne muscular dystrophy the stock has not recovered janus henderson stockpicker andy acker who leads janus’ health care sector research team and manages the janus henderson global life sciences fund jaglx thinks that sarepta’s next trial of the same gene therapy could turn out better “there are a number of reasons why we think that study failed and why the next study still has a good chance of success” he says data from the new trial won’t be available until late 2022 or early 2023 so a bet on an improved result will take some time to play out still acker says that many had expected shares to climb over 200 if the data had been positive in january and that they could still get that high the stock is trading below 80 per share a pharmaceutical based on the compound that gives magic mushrooms their kick sounds like a dormroom fantasy but it’s no hallucination compass is running a phase 2b trial of a psilocybin therapy in patients suffering from treatmentresistant depression that is expected to report data by the end of the year investors have soured on compass and its american depositary receipt are down 302 this year “people are kind of discounting it right now” says citi’s bitrittogarg “there’s some skepticism around whether or not psychedelics can actually be fdaapproved drugs” yet as bitrittogarg notes the fda has already approved one medicine derived from cannabis cowen’s baral who also likes compass says that “there’s significant potential upside for that stock” when it reports its phase 2b data later this year shares of allovir are down 483 this year and piper sandler analyst christopher raymond says there’s no good reason for it the company is developing what’s called a multivirus specific tcell therapy intended to treat or prevent viral infections in people who have received stem cell transplants “i think they have been more than anything victim of the broader sentiment that midcap names have fallen out of favor” raymond says the company already has proofofconcept data showing that the therapy known as viralymm can treat those infections it is awaiting data by the end of the year on prevention of those infections according to raymond he says that the stock could jump if that data turn out to be positive as it would substantially expand the opportunity for the drug raymond expects allovir to have revenue of 13 billion by 2028 he has a 55 price target on the stock implying a morethan 175 share price increase over its recent price of 1989