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This was supposed to be the year of the biotech comeback, when promising new medicines and high-dollar buyouts would reverse a sector-wide slump that dates back to 2021. Instead, biotech stocks have dramatically underperformed the broader market, and the year’s few green shoots are yet to grow into a turnaround.

The closely watched XBI biotech index has fallen more than 10% in 2023, while the S&P 500 rose about 13% in the same period. Privately held companies have struggled to raise new capital without taking a hit to their valuations, and biotech IPOs have been rare in number and inconsistent in return.

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The problem, analysts and investors said, is that the generalist investors who steer trillions of dollars of capital have simply soured on biotech. The furor over novel weight loss medicines like Wegovy has largely been a Big Pharma phenomenon, and rising interest rates have steered fund managers away from risky biotech stocks. The sector has gone through boom and bust cycles in the past, and it’s difficult, if not impossible, to predict when the macro winds might change and make biotech as popular as it was in the early days of Covid-19.

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