Biotech and pharmaceutical stocks bullish on U.S. rate cut

Samsung Biologics continued its record-setting streak on Monday to close at 1,087,000 won as other biotech and pharmaceutical shares also soared.

A computer-generated image of Samsung Biologics' upcoming Bio Campus II in Incheon [SAMSUNG BIOLOGICS]

Samsung Biologics stock hit a new 52-week high for the third consecutive trading day amid bullish trading of biotech and pharmaceutical stocks in Korea.

The rally has been fueled by the beginning of the U.S. rate-cut cycle and the recent passage of a bill by the House of Representatives aimed at barring Chinese bio-manufacturing contractors from the domestic market.

Samsung Biologics' share price closed at 1,087,000 won ($811.98), up 2.55 percent from the previous trading day, on the Kospi bourse on Monday.

It marked another 52-week record after Samsung Biologics soared to new yearly highs on Thursday with a 5.96 percent increase and on Friday with a 1.05 percent rise.

Other biopharmaceutical stocks in Korea have also surged as of late.

KRX Healthcare, which tracks the movement of 73 stocks in the biotech and pharmaceutical sector traded on the Korean market, rose 14.04 percent, or 506.27 points, over the past six months to 4,112.79 points. During the cited period, on the other hand, the KRX 300 Index dipped 7.63 percent to 1,604.46 points, while the Kospi declined 5.55 percent to 2,602.01 points.

The bullish bio-pharma trading was partly driven by expectations of U.S. rate cuts this year, which began on Sept. 18 when the Federal Reserve implemented a 0.5 percentage-point reduction of its key interest rate.

“Lower interest rates create a favorable environment for the biotech and pharmaceutical sector as the industry needs to raise funds for new drug development,” said Shin Seung-jin, an analyst at Samsung Securities.

“In general, bio stocks tend to increase in value during the rate-cut cycle,” said Shin, suggesting that the sector would continue to trade relatively stronger through additional rate cuts in the future.

The recent advances made by Korean pharmaceutical companies in new drug development are attracting investors as well. The share price of Yuhan Corporation, for example, nearly doubled over the past six months from 76,300 won to 148,200 won, up 94.2 percent. The drugmaker secured approval from the U.S. Food and Drug Administration for a combination treatment with Johnson & Johnson’s Rybrevant in August.

Meanwhile, a bill called the Biosecure Act, which aims to bar government-funded medical providers from doing business with so-called "companies of concern" including China's WuXi AppTec and WuXi Biologics, was recently passed in the House on the back of bipartisan support on Sept. 9.

The bill is expected to benefit non-Chinese contract manufacturers, especially those in India and Korea including Samsung Biologics.

However, as the legislation has yet to be passed and a grace period would last until 2032 even if it is signed into law, the actual impact of the proposed restrictions remains to be seen.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]