The overall gloom in public biotech market sentiment is starting to lift.
While we continue to hear concerns about inflation and Treasury rates as headwinds on biotech market performance, investors increasingly acknowledge the abundance of opportunity in today's market.
Sentiment seemed to have hit a low point some time in the second week of January and has gradually brightened.
This improvement in mood is emerging from an increasing understanding that differentiation of assets is important.
Just having a good late-stage dataset may not be enough.
There is also increasing view that we might not necessarily be in an environment where M&A takeouts alone will drive the market.
Rather, investors increasingly think that another way to perform well is to invest in a company that performs well commercially.
There is increasing recognition that product differentiation and commercial organization structure has a lot to do with how well biotech’s perform when they transition to the commercial stage.
There are many recent examples of excellence in launch performance.
The adage that one should “short the launch” of any biotech is coming under pressure as we are seeing so many launches do well.
We think this is one of the reasons that we are seeing strong performance now from late-stage and specialty pharma type companies – rather than earlier stage technology driven stories.
We had the occasion to attend Stifel’s Winter biotech conference last week in Park City Utah and to listen to more than a dozen investors on the market.
What was striking to us is that investors are very mixed in their view on the market today.
Whereas sentiment was uniformly negative a month ago – we heard quite a bit of positive chatter from investors and a view that the market might be heading up from here.
Rather than try to synthesize all of this, we can simply share some of the comments made:
Negative comments: “There’s no way I would put my PA into the XBI right now. Would you?”
“The China thing is a big problem. I see more downside and less upside than last year.”
“The generalists are gone from our market and are clearly not coming back anytime soon. I don’t see how the market performs well in 2025 without them.”
Others were more positive saying things like:
“This time last year – everyone said the market would go up. It didn’t. Now, everyone is saying the market isn’t going up. We’ll play contrarian. We are going long the market because conditions for a bull rally are quite strong.”
“We’ve done well in recent years but tend to avoid the stocks that everyone else is piling in to. We’re avoiding privates. We’re avoiding the stocks that our fellow specialists love. Instead, we are investing heavily in ex-US biopharma stories and are combing through smaller cap names for bargains and finding them.”
“There are so many great stories right now where the price is right. I see this as a market where stock picking is going to make money. That’s what we’re doing.”
“This is clearly a bigger year for M&A. This is going to be good for us.”
“After last week, the chances that RFK becomes head of HHS is over 90%. I wasn’t so sure what he’d mean for the market but after watching his confirmation testimony, we are a lot more bullish on what the Trump Administration is going to mean for biotech. We like the set up for biotech in 2025.”
Overall, public investor sentiment is split in today’s market. This topic came up on last Friday’s (Feb 7) Biotech Hangout. We argued that sentiment has shifted from a “2” out of ten to a “4”. Another commentator said, ok, “how about from a 1 to a 3”. Yet another said, “more like a “2 to a 3”.
Whatever the case, while sentiment is starting to improve, it clearly has a long way to go. There is no “FOMO” driving the market presently.
The political backdrop for the pharma sector is not terribly clear right now. How we get greater generalist participation also isn’t particularly clear. Many LP’s are discouraged which has been driving outflows.
However, there are also major positives at play – including growing need for medicines amidst long-term economic expansion, the prospect of a restructure of the IRA, the fading bloom on the tech stock rose, an improving interest rate environment and a better M&A environment.
What we heard on the ski slopes is that most investors are in the market with both feet and playing out their picks.
We think this is the type of market where the optimists will emerge victorious.
Macro Picture
We are now entering the fourth week of the Trump presidency.
We have seen visible theatrics regarding tariffs. It’s not at all clear how severe tariffs will end up being.
However, consumer expectations in the economy have dramatically shifted. Last week’s University of Michigan's February consumer survey revealed that respondents anticipate a 4.3% inflation rate in one year, marking a one percentage point increase from January and the highest level since November 2023.
In general, this is not a good thing. Inflationary expectations can become self-sustaining.
While tariffs have potential to be inflationary, they also directly deposit cash into government coffers with attendant benefits for the budget deficit.
Ten-year US Treasury yields started to come in last two weeks as it becomes clear that the Trump Administration is serious about control of fiscal deficits.
In total the 10-year yield has come down by 30 basis points since Jan 12th. Not a minor move as these things go.
This is a definite positive for biotech.
Treasury Secretary Bessent spoke to the media last week, indicating that the Trump Administration is focused on getting the 10-year yield down much further.
This week’s CPI readout will be an important one as it will help to influence Fed direction in the coming months.
Biopharma Market Conditions
The XBI lost ground last week as Neurocrine guided to soft INGREZZA® growth. Neurocrine is the single most influential member of the XBI. The XBI is up 1.3% so far this year.
On a total global value basis, biotech stocks fell 1% for the week – less than the XBI.
However, biotech has been weak all year. By our math, the total global biotech sector is down 1.1% for the year.
This is worse than the XBI and shows that pre-commercial, smaller cap companies aren’t faring terribly well in the market at present.
Even when looking at the XBI’s 30 most influential component stocks, which tend to be larger than most biotechs, things aren’t looking great in 2025.
The 30 most influential XBI stocks comprise 60% of the weight of the XBI (out of 138 stocks total).
The mean percentage change in value this year among these stocks has been -2% (median -1%). Neurocrine, Moderna, Cytokinetics and BridgeBio have dragged the XBI down.
In contrast, good performance of Regeneron, Insmed, TG, AbbVie, ADMA and Amgen has positively impacted the group.
Last year saw small cap company underperformance and negative results for those with caps over $1bn (the opposite of what is normally seen in a recovery).
This has been reversed in 2025.
We are seeing large caps ($50bn+ cap) do substantially better than other stocks. The average $50bn+ XBI component stock is up 7% in the last 30 days. All other size buckets are down over the same interval.
Notably, stocks with a market cap at year start under $500mm are down 4.7%, on average, at this point.
Last week was solid for the life sciences sector with big gains HCIT, diagnostics and solid performance in CDMO’s. In contrast, life science tools and biotech were weak.
The count of negative EV life sciences companies worldwide rose from 134 two weeks ago to 147 last Friday.
This measure of sector distress is starting to go in the wrong direction.
We only expect to see a big improvement once the Fed starts to more meaningfully reduce the discount rate.
Capital Markets Update
We have seen four companies raise $50mm or more in the IPO market in the last two weeks. Total volume raised has been $750mm in two weeks.
Importantly, investors are not losing money on these IPO’s as a group. Both first day and pricing to current are up on three of four of these deals.
The current price of Metsera is now up 64% from its offer level, in particular.
The first five and a half weeks of 2025 have seen $3.2 billion in follow-on (“FO”) biopharma offerings. This is well below the $1bn a week pace that was seen in Q4 2024. While deals are getting done, less than salubrious investor sentiment has restrained volume.
Discounts to last trade have averaged 8% (in line with historic averages). The average after-market performance of follow-on’s has been slightly negative so far in 2025.
However, for deals from companies with market caps under $2.5 billion, the average follow-on after market performance has been even to slightly positive.
The majority of deals have a confidential component. However, 21.4% of deals this year have been in the PIPE format. Compare this to 30% in 2024 and 28.6% in 2025. This is because, the market has been more open to larger issuers in 2025 – which tend to not use the PIPE format.
The market for venture privates has seen $5 billion in issuance in the first five and a half weeks of the year. This pace is well up from last year. Nonetheless, the last weeks have been more restrained than earlier in January.
We have seen $960 million in private debt deals get done so far this year. This is well below the blistering pace seen in Q4 2024.
Deals Update
We have seen $25 billion in M&A volume in the first five and a half weeks of 2025. This is one of the strongest starts to the year seen in a long time. If this pace were sustained, this would be the second strongest year for biopharma M&A in history ($250bn pace).
One comparison metric is the number of $1bn+ deals announced. So far this year, we have seen five such deals (including last week’s buyout of Mitsubishi Tanabe by Bain Capital) – and the year is one tenth done.
Compare this to a total of fifteen $1bn+ M&A deals in all of last year.
Last week’s $3.3 buyout of Mitsubishi-Tanabe by Bain Capital is the second largest M&A deal announced so far this year.
It’s also a rare takeout of a major Japanese pharma company.
It’s interesting to see a PE firm emerge as the victor in what was likely a well-run auction process for Mitsubishi-Tanabe.
Bain gets access to Radicava®, a soon-to-be blockbuster for ALS in the U.S. but also takes on a Japan business and large R&D organization that has substantial overhead expense.
Two other deals that caught our attention last week were the $320mm Alumis/Acelyrin merger and the purchase of Intermune by Legacy Pharma (no price given).
Alumis is basically absorbing some of Acelyrin’s pipeline and its cash. This is very much reminiscent of last year’s deal between Revolution Medicines and EqRx – where RevMed picked up cash for equity. Likewise, Alumis picks up more cash with this deal than it could likely get in the follow-on market today.
There are a few things of interest about the Legacy Pharma deal. First, Roche has obviously thrown in the towel on its Intermune deal– after paying $8.1 billion for it. Second, the buyer’s CEO, Mark Thompson, has an impressive track record. He previously built Concordia Pharma up from zero to over $3bn in value by purchasing pharmaceutical “tail assets”.
Let’s watch what he does this time.
If we were the betting type, we would put money on Legacy Pharma to do well.
An interesting feature of pharma earnings dialogue with investors in recent weeks has included commentary on M&A intentions and capacity. We noted last week that Pfizer has indicated that it has up to $10bn for pipeline M&A acquisitions in 2025. This is up considerably from guidance last year.
Obviously, a potential positive for biotech.
Worries persist in the market on the threat to U.S. and EU biotech from China. Two stories appeared last week on the topic. One by Dave Wainer in the Wall Street Journal and another by Hannah Kuchler and Wang Xueqiao in the Financial Times.
One’s view on this will depend on where you sit. A resurgent Chinese biotech sector is not a good thing for Western biotechs that are making the same types of molecules that are being made in China. On the other hand, Chinese molecules can be good for patients and can create great options for big pharma.
Interestingly, China does not have any type of globally active “big pharma”. Thus, molecules produced by their biotech ecosystem are available globally through Western companies.
Pharma Earnings Update
The sands of the pharma industry continue to shift in 2025.
Since the Pandemic’s end, the industry’s narrative has been dominated by success of obesity stories.
We’d note that AbbVie displaced Novo Nordisk as the world’s second large pharma company two weeks ago.
AbbVie shares are near their all-time high.
The company sports an enterprise value over $400 billion.
This impressive on so many levels. First, AbbVie was a spinoff from Abbott – intended to shield Abbott investors from the risk posed by the Humira® patent expiry. Had the two companies stayed together (and operated as well together as they did separately – admittedly, a big assumption), the combined EV today would be $625 billion – a real value rival to Lilly. And, much more than J&J – which was the value leader at the time of the split up.
Second, AbbVie’s impressive performance is a testament to strong commercial performance across the board. AbbVie has consistently done a spectacular job in the area of commercial execution in our industry.
Third, one can’t miss the emerging importance of immunology and inflammation (I&I) in today’s market.
It would be fair to say that two narratives are driving today’s market: (1) the huge obesity market and (2) the huge I&I market.
AbbVie’s ability to beat it’s own successful Humira® franchise with new drugs Skyrizi® and Rinvoq®.
Fourth, AbbVie is a superb dealmaker. While it’s true that there is some challenge associated with the recent Cerevel deal, there are two other deals that really shined through in the company’s recent Q4 earnings press release: (1) the Allergan acquisition (delivering in CNS and aesthetics big time) and (2) the Skyrizi® license from BI.
ABBV paid $600mm upfront for the rights to Skyrizi® - which is an obvious candidate to become the first or second largest drug in history (let’s see how Skyrizi fares in 2030 against tirzepatide). Not bad. Less than a billion upfront for a drug that will do well over $100bn in revenue.
Lilly has the highest enterprise value of any life sciences company in the world by far (up from a ranking of #9 on Feb 8, 2021). While not an all-time high, LLY has performed quite well in 2025 (up 13%).
In contrast, with recent data on cagrilintide, Novo Nordisk has lost its #2 spot and is now #3.
J&J, the historical long-time industry value leader now sits in the #4 spot. Interestingly, J&J is not that far off from taking the #2 or #3 spot (up 6% YTD).
Other strong performers this year have been AZ, Roche and Thermo.
In last week’s earnings news we were impressed by Lilly’s Q4 revenue performance: up 45% YoY, driven by tirzepatide. Perhaps most impressively, Lilly has been able to come off shortage on tirzepatide. Huge investments in fill/finish capacity have obviously made a big difference.
We have been struck that Lilly is actively advertising for new tirzepatide customers right now. Their “Change” ad for Zepbound® is impactful and an interesting contrast to that of Hims that appeared on yesterday’s Super Bowl broadcast.
A key development last week was the news that Lilly will be reporting retatrutide obesity data early than previously expected. Given recent data on Maritide and cagrilintide (more on this in a bit), retatrutide has a good chance to emerge as the long-term weight loss champion for the pharma industry.
The next round of data will be determinative.
Novo Nordisk also did well in 2024, showing 26% YoY topline growth.
Impressive.
Just not as impressive Lilly’s growth, hence the growing gap in valuation of the two companies.
Novo noted in last week’s earnings that they have tripled GLP-1 patient reach in the last three years and are rapidly scaling up manufacturing capacity.
Novo went to some pains to explain the potential of cagrilintide. They pointed to 22.7% weight loss seen in the REDEFINE1 study and highlighted low discontinuation rates. A very interesting point made by Novo last week was that patients who ended the REDEFINE1 trial on a lower dose actually lost more weight. This raises the possibility that these patients can be redosed up – something that Novo plans to investigate in a further trial.
Novo updated on its ongoing Phase 3 trial for Ziltivekimab (IL-6 mAb) for cardiovascular disease. The three ongoing registrational trials are due to conclude in 2026. We continue to thing that this drug has huge potential for Novo Nordisk.
We like the prospects for others pursuing this area such as Tourmaline.
Amgen saw 19% YoY revenue growth in 2024. Also impressive. Amgen has major R&D readouts this year including for REPATHA® for prevention and MariTide for diabetes. Amgen’s upcoming readout rocantilimab in atopic dermatitis is also highly relevant as its readout for IMDELLTRA® in 2L small cell lung cancer.
AZ noted that its revenue in 2024 was up 21% YoY and had nine major Phase 3 readouts last year. It’s performance in oncology was particularly notable.
Hard not to be wowed.
We note ongoing progress at AZ in obesity. It’s enrolling three Phase 1 studies with its oral GLP-1 RA and is enrolling three studies with its long-acting amylin drug.
Pfizer reported 12% topline growth. While not at the same growth level as the above companies, the scale of Pfizer’s enterprise is higher.
And wait, let’s make sure we got that right.
Pfizer beat on topline growth. The company is executing well on its commercial goals and strikes us as having a strong future.
Industry Update
We are living in a world of high velocity policy bomb dropping from the Trump Administration. The approach of “shock and awe” policy is certainly getting attention.
One worries about policy credibility as some of the newly proposed policies seem to come and go. Many policy proposals come as “executive orders” but appear to conflict with statutes that are already in place.
We hope that this turns out to be true of the Administration’s latest proposal which is to limit NIH overhead payments to 15%.
The reality is that overhead charges on grants have become an important vehicle for funding infrastructure involved in basic biopharmaceutical research.
It was interesting to see that “red state” Senators from places like Alabama immediately spoke up, indicating that this policy change would not be good for their local economies.
For example, UAB is the largest employer in the state of Alabama and receives a substantial amount of revenue from the NIH via overhead charges.
Apparently, this latest policy initiative would require a change of statute in any case – so it’s not clear what the Administration’s actual intentions are.
The timing of pulling funding out of leading biomedical research institutions could be better given the increasing challenge the U.S. is facing from China.
Talk of federal employee layoffs and retirements are not necessarily welcome news in some places.
For example, we wouldn’t want to see buyouts hit the chronically understaffed FAA.
Another important three letter agency is the FDA. Zachary Brennan wrote in last week’s Endpoints News:
The Trump administration’s reported plans to potentially lay off thousands of FDA employees could slow the agency’s reviews of new drugs, experts say, in addition to impacting other core agency functions. ‘If we do see layoffs to this extent, it will cause a massive loss of institutional knowledge and definitely would have an impact on slowing down the work that FDA does,’ Chad Landmon, chair of Polsinelli’s Hatch-Waxman and biologics practice, told Endpoints.”
Comment by Amgen’s Jay Bradner Last Week
Stifel held its Biotech Executive Ski Summit in Park City Utah last week. The event was well attended by top buyside investors and was a forum for industry conversation. There were many great “fireside chats” by various industry leaders.
We took some notes during a talk by Jay Bradner, EVP of R&D of Amgen and thought that some of his comments were of broad industry interest. Here are few snippets:
Q: To what degree has lower M&A been driven by FTC or has it been driven by other things such as China. How does this unfold over 2025/2026?
A: There are nuclear winters that have impact. There is a lot of free cash flow and firepower in the top 15 pharmas. If there is a dynamic, it’s on the supply side for good fresh ideas. I see a lot of redundancy. After the first CD19 CAR therapy, there was another 200. Best in class is a euphemism for not first in class. A new drug has to be really convincing.
Q: Is FDA going to be a predictable institution under the Trump Administration?
Our engagement with regulators has been pretty normal. We have every expectation that we will interact with new leaders in a business as usual and normal way.
Q: How much does the IRA impact your decisions?
We don’t invoke the IRA at the time of portfolio decisions. It is, for sure, antagonistic to innovation. It is hopefully not the last act of our government in its effort to achieve price control. We like that we at Amgen have less exposure to the IRA because we are the world’s leading biotherapeutic company. I think it’s really sad we have an overhang on value capture on small molecule therapeutics. I do think the IRA reads through to how molecules are evaluated in partnering discussions.
Q: There is investor concern about crowding in obesity? Is this a zero sum game? What’s your philosophy?
There is a huge residual unmet need in the obesity market. When you address an unmet need with a new medicine there is value created. People want to be shown succinctly why any particular medicine is so much better. How stock markets react to a dataset is not of interest to physicians. Physicians want to see patients still on medicine, still losing weight – over time. That’s what we are focused on with MariTide. Racing to get some massive weight loss number that the markets react to is not our goal. We want steady predictable weight loss – over an extended time. In our second MariTide P3 we are looking at how patients do in year 2 and are using a design to tease out the ability to avoid weight rebound.
Q: How do you think about B cell depletion in autoimmunity?
It’s a big opportunity for us. CD19 is on mature and immature B cells. You can imagine that a CD19 should be better than a CD20 – which is mainly on mature cells. The CAR-t data on CD19 in autoimmunity was breathtaking. There is a big opportunity to reposition two Amgen drugs – BLINCYTO and Uplinza for autoimmunity.
Q: What other trends in I&I space interest you?
There are two things I am looking at with high interest. The first is antigen-specific immune tolerance. Then we are at the root cause of autoimmunity. I would focus there. The second is targeting core transcription factors that drive the inflammatory state. The more we can get to state-defining transcription the more precise we can get in treating autoimmune disease. I am following STAT and IRF. There is an important opportunity, for example, to targets molecular glues and related means to hit these type of transcription factors.
Best,
Tim Opler
Managing Director
Stifel Investment Banking
Direct Phone: +1 212-257-5802
oplert@stifel.com
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