After a few years of poor performance, the tide may turn in favor of biotech stocks by 2025, but it’s still wise to bet cautiously on some of the most innovative stocks. “We remain optimistic about the outlook for biotech,” Stacey Sears, senior vice president and portfolio manager at Emerald Advisors, told CNBC. “I think the underperformance (makes them) attractive.” SPDR S&P The Biotech ETF (XBI) has gained more than 2% so far this year, but has fallen 9% since the election as investors question what changes the Trump administration will bring. Sears said investors will learn about the regulatory and policy environment in the coming months, but in the meantime, the current uncertainty is creating opportunities, especially among the small and mid-cap stocks she monitors. Waiting for M&A to pick up In recent years, biotech stocks have been weighed down by a lack of M&A activity and high interest rates, which have raised companies’ capital costs, and have remained volatile even after the Federal Reserve began cutting interest rates earlier this year. But analysts say innovation has been booming and the new year could bring a new round of drug approvals and launches, sending stocks higher. If yields cooperate, “then we finally start to have more meaningful growth in M&A activity while continuing to make progress from a clinical perspective, which I think will bring eyes back to the group,” Sears said. XBI 5Y mountain SPDR S&P Biotech ETF over the past five years Many industry observers point to the looming “patent cliff” as a driver of future deals. Yuri Khodjamirian, chief investment officer of Tema Funds, said that between now and 2028, large pharmaceutical companies will need to replace more than $300 billion in revenue, and they will look to innovative biotech to fill this gap. “The cliff did rise this year, but it will become stronger over ’25 and ’26,” he said. Terry Smith, head of life science research at Emerald, expects neurology, immunology and inflammation, oncology and metabolism to be the most attractive clinical areas for Big Pharma, but doesn’t expect a frenzy of speculative stock buying to broadly boost the sector. . “That’s why we think active strategies are so important, because you have to choose those strategies,” Smith said. “You can’t just own the entire index.” Emerald declined to provide specific stock picks for the coming year. Goldman Sachs analysts cite AbbVie, Biogen, Johnson & Johnson, Merck and Roche as the most likely suitors. Merck is best positioned in terms of “capital, demand and positioning” and a record of recent deal success, while Johnson & Johnson may be able to “pursue a sizable target” after a series of smaller deals. Insmed: A critical year ahead Insmed is a Goldman Sachs Buy-rated stock, and the firm’s analysis suggests it could be an attractive takeover target. The company’s shares are set to rise nearly 125% by 2024, according to FactSet, with all analysts covering the rare disease research outfit rating it a “buy” or “overweight.” Analysts on average see a gain of more than 28% from Friday’s closing price. Next year “will be another year of value creation for INSM through commercial execution and clinical data catalysts,” Goldman Sachs analyst Andrea Newkirk wrote in a research note earlier this month. She explained that the company’s peak global sales estimate of $5.9 billion for brensocatib “probably significantly” underestimates the drug’s true potential. She expects it to be approved by the middle of next year to treat a chronic lung disease called bronchiectasis, but further benefits could come from its wider use in other conditions. Insmed also has other respiratory assets in its portfolio, which could boost annual peak sales to $8.2 billion, she said. Barclays analyst Leon Wang also likes Insmed, but his focus is on clinical data expected to be released in the second half of next year for treprostinil palmitol inhalation powder (TPIP) to treat pulmonary arterial hypertension, or high blood pressure in the lungs. “We have a positive bias on this reading and seek superior efficacy compared to standard of care Tyvaso,” Wang wrote in a note to clients in mid-December. “…In summary, 2H25 could transform INSM into a multi-commercial product company, which is conducting key studies in two major indications.” Legend Biotech: Poised for a rebound In oncology, several Wall Street analysts are optimistic about Legend Biotech’s prospects. The CAR-T specialist’s shares are down 46% year to date, but the stock could soar 147% from Thursday’s closing price, according to the average price target collected by FactSet. LEGN Year-to-date, Mountain Legend Biotech Stock “LEGN stock has been unduly punished by what we believe is an unfair comparison of clinical data to (Arcellx’s) anito-cel, as well as lingering concerns about China risks, especially given the new “Governments will join in January 2025,” wrote Barclays analyst Gena Wang, referring to clinical data presented by rival Arcellx at the American Society of Hematology meeting on December 9. We expect ( Legend’s) Carvykti launch volumes will increase in 2025, with approximately 100% year-over-year growth likely in 2025 and 2026, primarily due to normal execution of manufacturing capacity expansion, label expansion into earlier-stage multiple myeloma series, and 2025 Potential positive CARTITUDE-5 data in 2020, along with continued superior clinical performance and more mature data, cements Piper Sandler as one of its biotech focus stocks, according to the investment bank. So big that there’s room for success in the market for Lenovo and its partner Johnson & Johnson, as well as Arcellx and its partner Gilead Sciences. “Stick to what you can measure,” said a Morgan Stanley biotech analyst in 2025. One of the names highlighted in the outlook. “We expect stocks with products with existing market positions and brand expansion to perform best in 2025,” the team wrote on Dec. 16. Legend, along with Argenx, Beigene, Sarepta Therapeutics and others, fit that description . Morgan Stanley said their key theme for 2025 is “stick to what you can measure.” Legend is the easiest to measure because its existing products have the opportunity to increase sales. The company’s next targets include stocks like Insmed and Jazz Pharmaceuticals, which have either recently received drug approvals or have upcoming product launches as key drivers. The final group they compiled was a list of companies with “material catalysts” that could be commercialized beyond next year. The more speculative group includes Rocket Pharmaceuticals, a company developing treatments for Danon disease, a rare genetic disorder that often causes fatal heart problems. Rocket shares are down nearly 61% so far this year, according to FactSet, while the consensus price target is up nearly 285% from Friday’s closing price. Morgan Stanley expects a catalyst for the stock in late 2025, when Phase 2 trial data for Rocket’s RP-A501 gene therapy is expected to be released. These are just one example of the innovations biotech analysts are paying attention to, and why they hope the industry’s performance will pick up. “You can only get through so many bad years, right?” said Tema’s Hojamilian. “At some point, valuations start to look very attractive. If you look at the healthcare industry as a whole, it’s trading at about a 23% discount to the S&P 500, which is one of the lowest discounts we’ve ever seen. One, certainly in the past 20 years.
Innovative biotechnology stocks have great chances of breaking out in 2025 | Real Time Headlines
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