After several years of poor performance, the trend could change in favor of biotech stocks in 2025, but it surely would still be sensible to bet cautiously on a few of the most modern names. “We're still optimistic about the outlook for biotech,” said Stacey Sears, senior vp and portfolio manager at Emerald Advisors, in an interview with CNBC. “I think the performance is below average [makes them] The SPDR S&P Biotech ETF (XBI) is up more than 2% year-to-date but has fallen 9% since the election alone as investors wonder what changes the Trump administration will bring . Investors will gain clarity on the regulation and policy environment in the coming months, Sears said, but in the meantime, the current uncertainty creates an opportunity, particularly among the small- and mid-cap stocks it tracks that are waiting to happen M&A growth in recent years has been held back by a lack of merger and acquisition activity and high interest rates have caused companies' cost of capital to rise and have remained volatile even after the Federal Reserve began cutting interest rates earlier this year. But innovation has flourished and the new year will likely bring a new round of drug approvals and launches that could push stocks higher, analysts say, “and then we finally see a more significant increase in M&A activity, along with further progress.” From a clinical perspective, I think this will lead to an increase. “Eyes back to the group,” said Sears According to Yuri Khodjamirian, chief investment officer at Tema Funds, major pharmaceutical companies have more than $300 billion in revenue to replace by 2028 and will look to innovative biotech companies to fill the gap close. “The cliff has really increased this year, but it will get stronger in years 25 and 26,” said Terry Smith, head of the Life sciences research at Emerald, expects neurology, immunology and inflammation, oncology and metabolism to be essentially the most attractive clinical areas for Big Pharma M&A activity is resuming. “That's why we think an active strategy is really important because you have to choose it,” Smith said. “You can’t just own the entire index.” Emerald declined to make specific stock recommendations for the approaching yr. Goldman Sachs analysts see AbbVie, Biogen, Johnson & Johnson, Merck and Roche because the more than likely buyers. Merck is best positioned with “capital, needs and positioning” and might point to recent successes, while Johnson & Johnson could also be able to “pursue a significant target” after a series of smaller deals, it said. Insmed: A Crucial Year Ahead Insmed is a Buy stock on Goldman's high-conviction list, and the corporate's evaluation suggests it could possibly be a sexy takeover goal. Shares are up nearly 125% in 2024, in line with FactSet, and all analysts covering the rare disease researcher rate it a “buy” or “overweight.” On average, analysts see a gain of greater than 28% from Friday's close. Next yr “is expected to be another year of value creation for INSM through commercial execution and clinical data catalysts,” Goldman analyst Andrea Newkirk wrote in a research note earlier this month. INSM YTD Mountain Insmed shares year-to-date She explained that the corporate's estimate of peak global sales of $5.9 billion for Brensocatib “likely significantly” underestimates the drug's true potential. It expects it to be approved by the center of next yr to treat a chronic lung disease called bronchiectasis, but further upside could come from expanded use in other diseases. Insmed also has other respiratory assets in its portfolio that would boost annual peak sales to $8.2 billion, she said. Barclays analyst Leon Wang also likes Insmed, but his focus is on the clinical data expected within the second half of next yr for treprostinil-palmitil inhalation powder, or TPIP, in pulmonary arterial hypertension, or hypertension within the lungs. “We remain positive on this statement and strive for superior efficacy compared to standard treatment with Tyvaso,” Wang wrote in a note to customers in mid-December. “…Overall, 2H25 could make INSM a multi-commercial product company starting pivotal trials in two major indications.” Legend Biotech: Heading for Recovery In the oncology space, several Wall Street analysts are weighing in on the prospects for Legend Biotech optimistic. Shares of the CAR-T specialist are down 46% yr up to now, but the common price goal tracked by FactSet suggests the stock could rise 147% as of Thursday's close. LEGN YTD Mountain Legend Biotech Stocks Year-To-Date “LEGN stock has been overextended due to what we believe is an unfair comparison of clinical data with. [ Arcellx’ s] Anito-Cel as well as ongoing concerns about China risk, particularly with the new administration coming on board in January 2025,” wrote Barclays analyst Gena Wang, referring to clinical data presented by rival Arcellx on the 2020 conference American Society of Hematology presented Dec. 9. “We believe the facts speak for themselves, and that is what we expect.” [Legend’s] Carvykti market launch increases in 2025 with possible year-on-year growth of roughly 100% for each 2025 and 2026, driven by the planned implementation of the expansion of production capacities, the extension of the designation to an earlier line of multiple myeloma with probable positives CARTITUDE-5 data in 2025, in addition to continuing to have a superior clinical profile with more mature data to position itself as an industry leader establish,” said Wang. Piper Sandler named Legend one among its biotech focus stocks The investment bank said demand is so strong that there’s room available in the market for each Legend and its partner Johnson & Johnson, and Arcellx, which works with its partner Gilead Sciences to achieve success. “Stick with what you can measure.” The names Morgan Stanley biotech analysts highlighted of their 2025 outlook: “We expect stocks that have a product with an existing market position combined with a label extension to perform best in 2025 will,” the team wrote on December sixteenth. The legend suits this description, as do corporations like Argenx, Beigene, Sarepta Therapeutics and Rhythm Pharmaceuticals. According to Morgan Stanley, their key theme for 2025 is to “stick with what you can measure.” Legends are one among the simplest categories to measure since it is an existing product that has the possibility to extend sales. The company's next area includes stocks like Insmed and Jazz Pharmaceuticals, whose predominant driver is either a recent drug approval or an upcoming product launch. The final group they put together was a listing of corporations which have “material catalysts” that could lead on to commercialization beyond next yr. This more speculative group includes Rocket Pharmaceuticals, an organization developing a treatment for Danon disease, a rare inherited disorder that sometimes results in fatal heart problems. According to FactSet, Rocket shares are down nearly 61% year-to-date, and consensus price targets suggest a rise of nearly 285% from Friday's close. Morgan Stanley expects a catalyst for the stock in late 2025, when Phase 2 trial data for Rocket's RP-A501 gene therapy is predicted. These are only a number of examples of the innovations biotech analysts are seeing and why they’re confident that the sector's development will pick up. “You can only have so many bad years, right?” said Khodjamirian of Tema. “At some point the valuations appear very attractive. If you take a look at the healthcare sector basically, it's trading at a few 23% discount to the S&P 500, which is one among the bottom discounts we've ever seen, actually within the last 20 years.
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