It hasn’t been a great week to be a biotech investor.
A week ago, news broke that Dr. Peter Marks, a key leader at the FDA, was departing amid a broader 25% headcount reduction at the agency. For an industry that relies on regulatory predictability, this signaled instability—and the market reacted swiftly.
Biotech Stocks Tumble Amid Regulatory and Macroeconomic Shocks
Biotech stocks opened sharply lower on Monday, March 31, and never recovered. Vaccine stocks were hit especially hard:
- Novavax (-27% YTD)
- Moderna (-40% YTD)
- Vaxcyte (-62% YTD, following disappointing clinical data)
Then, on Wednesday, April 2, after market close, President Donald Trump announced sweeping tariffs—up to 34% on Chinese goods and 20% on other trading partners—dubbing it “Liberation Day.”
The scale of the tariffs stunned markets, triggering a 10.5% two-day drop in the S&P 500, erasing $6.6 trillion in market value.
The XBI (biotech ETF) fell 13.1% for the week closing at 73.66 and is now down 19.5% YTD—a stark reversal from January’s optimism.
We took a flight Thursday afternoon out of New York and watched shell-shocked passengers glued to CNBC and various news channels replaying the news.
Reflecting the shock in the market, the VIX hit 45% on Friday, matching its Pandemic high level.
Before the market open on Monday, U.S. stock futures were down – although not as sharply as one might fear, following major market drops in China, Japan and Europe.
The Trump Administration has continued to back the tariff plan although a number of Administration supporters such as Bill Ackman sounded the alarm on the tariff plans and encouraged a 90-day tariff holiday while negotiations take place. He wrote on Sunday:
“Business is a confidence game. The president is losing the confidence of business leaders around the globe. The consequences for our country and the millions of our citizens who have supported the president — in particular low-income consumers who are already under a huge amount of economic stress — are going to be severely negative.”
What the Market Break Has Meant for Biotech
We did a little digging into what had gone on in the market last week. What follows are some facts about the state of global biotech (recall, we define biotech as R&D-stage therapeutics companies).
For the week ended Apr 4, 2025, U.S. domiciled biotech was down 19.3% on a value-weighted basis – substantially worse than indicated by the XBI.
The total market cap of U.S. domiciled biotech (375 therapeutics companies) was $188 billion on the last day of 2024, $162 billion on Friday close (Mar 28) and $130.5 billion on this Friday close (Apr 4).
In total, U.S. domiciled biotech valuations are down 30.4% in aggregate this year.
While China biotech traded up last week by 3%, it reversed course on Monday, April 7th.
China biotech fell by 18.6% on trading on April 7th (Monday).
Hong Kong fell by 18% with big drops in popular investor names like Cstone (-29%), Laekna (-29%) and Antengene (-31%).
Overnight trading in South Korea, Japan and Australia was not great. The average Japan biotech dropped 13.3%; Taiwan biotech dropped 11.6% and Australia biotech was down 6.9%.
South Korean biotech was up overnight by 1.6%. This is because the largest cap biotech in South Korea, ABL Bio, announced that it received a $49mm upfront in a deal for brain penetrant biologics last night.
Bravo.
UK biotech was down 15.7% last week, Swiss biotech was down 9%, Denmark biotech was down 19% and Dutch biotech was down 15.8%.
In trading through noon Europe time, European biotech stocks fell another 5%. Large caps were also down roughly the same (e.g., Roche fell 6%; AZ fell 5%; Novartis fell 4.6%).
Basically, the Europeans suffered about as much as the U.S. biotechs. Our interpretation is that the same funds that were selling U.S. biotechs were also selling their Europe holdings (more on funds in a moment).
A week ago, there were 165 life sciences companies in the world that had negative enterprise value. By Friday, that number had risen to 188.
As of Friday’s close, 40% of U.S. biotech companies were trading with negative enterprise value.
There is $68 billion of cash held by public U.S. biotechs – which is more than half of the sector’s total market cap now. $25 billion of that cash is held at biotechs with negative enterprise value.
Twenty percent of US public biotechs have more than $300mm of cash, 44% have more than $100mm of cash; 57% have more than $50mm of cash and 22% of biotechs have less than $10 million in cash.
Thirty-nine percent of U.S. biotech has two years or more of burn in the bank. Twenty-five percent have one to two years of burn and thirty-six percent have less than a year of burn. We perused the list with less than a year of burn. This list is mainly companies with very low market caps but there are a few with higher market caps that need to reduce burn quickly or raise money in what appears to be an unforgiving market.
The average enterprise value of a U.S. preclinical stage biotech was $511 million on Dec 31, 2021, $73 million at the previous worst trough point (Mar 17, 2023), $77 million at the start of 2025, $29 million a week ago and $4mm as of Friday, Apr 4th.
The average enterprise value of a U.S. Phase 2 biotech was $751 million on Dec 31, 2021, $265 million on Mar 17, 2023, $507 million at start of the year and $332 million as of Friday, Apr 4th market close.
Phase 3 biotechs have been hit harder than the Phase 2’s. The average U.S. Phase 3 biotech had an enterprise value of $1.36bn on Dec 31, 2021, $797 million on Mar 17, 2023, $710 million at the start of this year, $636 million a week ago and $374 million on Friday.
For completeness, the average U.S. Phase 1 biotech was worth $435 million on Dec 31, 2021, $183 million on Mar 17, 2023, $262 million at start of the year, $173 million a week ago and $95 million on Apr 4th close.
The average U.S. domiciled vaccine biotech (N=6) was worth $1.4 billion at start of the year, $1.25 billion week ago and $423 million on Friday.
The average neuroscience biotech (N=33) was worth $279 at start of the year, $147 million a week ago and $76 million on market close Apr 4th (down 48% for the week).
Cardiovascular biotechs held up much better. The average CV biotech had an EV of $1 billion at start of the year, $935 million a week ago and $786 million on Friday (down 16% for the week).
Other therapeutic areas that held up reasonably well in the last week included obesity stories (down 18%), oncology biologics (down 23%), hepatology (down 23%) and precision oncology (down 26%).
Therapeutic areas that were down 35% or more included immune other (down 55%), small molecule oncology (down 41%), ophthalmology (down 39%), endocrinology (-38%), infectious diseases (-38%), Alzheimer’s (down 37%) and T-cell immunology (down 36%).
Specialist Investors Under Pressure
While some view market ups and downs as a normal part of being in the life sciences ecosystem, there is a deeper concern – how the sustained downturn in biotech stocks is impacting the specialist investor universe.
And, also, how the specialist investor universe is impacting the downturn.
Unlike passive ETFs, healthcare-focused hedge funds face quarterly redemptions—and human nature dictates that investors flee underperforming funds. This can create a vicious cycle:
- Poor performance leads to redemptions leads to forced selling leads to further declines.
- Even well-performing funds face withdrawals as LPs (limited partners) de-risk.
Some funds have imposed "gates"—restricting withdrawals to avoid fire sales. Our understanding is that at least a handful of funds have activated gates in the last month, exacerbating the biotech turmoil.
More broadly, some generalist hedge funds and ETF’s also found themselves in forced selling mode last week due to margin calls associated with the use of leverage.
A story in Reuters on Friday indicated that leveraged ETF’s and many hedge funds were in forced “sale mode” last week creating one of the largest “net selling” situations in decades.
The Trump Tariff Gamble: Political and Economic Risks
Our sense (we don’t have hard data to be clear) is that the main issue with the Peter Marks news was that more limited partners in hedge funds chose to attempt to withdraw funds during the week (it was right after quarter end).
Interestingly, we spoke to a fund allocator on Thursday after the market carnage associated with the tariffs who indicated that they were advising a large endowment to come back into biotech through investments into various hedge funds.
His view was that the damage to biotech to be done by the Trump Administration had been done; that the upcoming earnings season will be fine and that there is little more pain to be suffered from here.
His main argument was that Trump is playing with fire with respect to his base.
He noted how many everyday Americans were turning negative on Trump because of inflation fears associated with the tariff moves. Parenthetically, a Wall Street Journal poll of ordinary Americans, published on April 5th, confirmed strong opposition to tariffs because of fear that they will raise prices.
Tariffs are a form of regressive taxation as well, typically impacting those who are least able to pay the most.
This was one of the reasons that the U.S. abandoned tariffs as a way to generate revenue in favor of progressive income taxation in the early 20th century.
Despite valiant efforts by various Trump Administration members last week, Trump’s tariffs are clearly politically risky.
Historically, protectionism has backfired for the party in power:
- 1890s (McKinley Tariffs): Republicans lost 50% of congressional seats.
- 1930s (Smoot-Hawley): The Republicans lost Congress for 60 years.
The fund allocator argued that Trump is fairly rational and given recent shifts in the public mood is running the risk of rapidly becoming a lame duck after the upcoming 2026 congressional elections if he does not quickly put the tariff genie back into the bottle.
Thus, he reasoned that the tariff situation is likely to get better from here.
His argument is that the bad news is out and there is room for a lot of good news ahead.
We are sympathetic with this perspective but would make the obvious point that anytime the U.S. is unilaterally imposing steep tariffs, the economic outlook is going to be uncertain because the U.S. can’t control the response from other countries.
The history of tariffs in America is not a good one.
Milton Friedman and Anna Jacobson Schwartz, in their seminal work A Monetary History of the United States, 1867–1960, argued that retaliatory tariffs following the Smoot-Hawley tariffs of 1930 significantly worsened the Great Depression, even though they mainly blame the Depression on bad monetary policy.
The worry in the current situation is that retaliation to U.S. tariffs get out of control in a classic trade war or backfire in other ways that are not in the interests of the United States.
China has already imposed a 34% counter-tariff. But this may be just the beginning.
Not only could we hear from Europe this week, but our trading partners have levels to pull that go well beyond tariffs.
For example, a major risk is that the Chinese dump U.S. Treasuries (they hold $700B).
Or perhaps, other nations choose to do the same. Foreign countries hold $7 trillion of U.S. debt.
Further, according to the IMF, there is another $7 trillion or so of US dollars held in reserve by foreign central banks. We are seeing the dollar weakening and one can presume that central bank’s selling of the currency may well be at play.
There are scenarios where recent tariff moves could leave the U.S. increasingly economically isolated in a multipolar world with an ascendant China. The ability of other countries to trade among themselves and thrive independently of the US has increased. Today, the U.S. accounts for 26% of global GDP – down from 40% in 1960.
A story over the weekend in The Economist indicated that China is responding fairly boldly to Trump’s tariffs, in part because only 15% of its exports now go to the United States.
Pharma’s Tariff Exemption—But for How Long?
Importantly, Trump has exempted pharmaceutical products from tariffs.
While good news on its face, there is widespread concern that excise taxes are on the way. The Trump administration is considering launching a so-called 232 investigation into pharmaceuticals, among other industries, which could lead to import duties under the Trade Expansion Act.
Our understanding from insiders is that the pharma industry is broadly engaged in conversation with the Trump Administration.
We are hearing that the Trump Administration has several key issues with how the pharma industry works in the United States.
First, there is a strong desire to see less employment offshoring.
Second, the Trump Administration is arguing that the wide gap in prices for drugs between the U.S. and other countries such as Canada or the UK indicates that the U.S. is getting a bad deal.
He is arguing that this gap should be narrower and has floated the idea that pharmaceutical companies charge higher prices in other countries. This is better, of course, than the converse in which pharma companies would charge less in the U.S.
Ultimately, of course, the idea is that the pickup in price that other countries pay would provide room for reduction in prices in the US.
The pressure is evident and acute.
In his so called “Liberation Day” speech Trump said “The pharmaceutical companies are going to come roaring back, they are coming roaring back, they are all coming back to our country because if they don’t they got a big tax to pay. And if they do, I’ll be very happy.”
Importantly, major onshoring steps have already been taken with the recent announcement from J&J that they will invest $55 billion in manufacturing, research, and technology in the U.S. over the next four years. It’s not clear, to be sure, how much of this is incremental and how much of this was already planned by J&J to be spent in the U.S. Others that have indicated that they will be investing in U.S. manufacturing infrastructure include AstraZeneca, Eli Lilly, Merck, Novo Nordisk and Pfizer.
This conversation is not a simple one as actions taken by both sides may well end up being more symbolic than substantive.
On the one hand, the main issue is that Trump’s mandate and ability to drive policy is of uncertain duration. Given the reaction to last week’s tariffs, it feels like it might not be so long-lasting.
On the other hand, shifts of manufacturing are notoriously slow due to strict GMP requirements and regulations.
Certain pharmaceutical products are reasonably hard to tech transfer from one site to another and shifting manufacturing can take years. Thus, it is entirely possible that commitments to shift manufacturing to the U.S. need not be honored over time.
The “deal” that the Trump Administration is trying to achieve – essentially strong-arming pharma companies to undertake steps that are not in their financial interest is very hard to get done.
Exempted or not, the pharma industry is likely to take pain from tariffs. Eli Lilly President, Dave Ricks, spoke to the BBC. The BBC wrote on Friday:
“But Mr Ricks seemed in little doubt that tariffs will eventually hit and that this will have damaging consequences for investment in new medicines. He explained drug prices were essentially capped in Europe and the US, which meant the impact of tariffs would be felt elsewhere. ‘We can't breach those agreements so we have to eat the cost of the tariffs and make trade offs within our own companies,’ he said. ‘Typically that will be in reduction of staff or research and development (R&D) and I predict R&D will come first. That's a disappointing outcome.’”
Facing Market Gloom
It’s no secret that biotech investor sentiment is low right now.
Like really low.
Across the board, conversations with public investors in the last week revealed deep concerns about the market, the environment and prospects for stocks.
So, let’s summarize the arguments for gloom on the U.S. biotech sector:
- High uncertainty about regulatory superstructure that supports the biotech market – particularly departure of FDA officials who have championed policies that favor new modalities in biotech.
- Specific steps by the Trump Administration revealed Friday and over the weekend have been pharma unfriendly including (1) delaying the approval of the Novavax vaccine after ouster of Peter Marks and (2) leaving out Biden’s proposal to cover obesity drugs in Medicare.
- Pressure on an unknown number of hedge funds from impatient limited partners who are fed up with poor returns relative to broad market indicators.
- No obvious influx of capital into small and midcap biopharma from generalist investors.
- Growing threat from Chinese biotech firms who have innovative vigor and increasing sophistication (some observers consider this the most worrisome factor right now).
- Heavy crowding into many therapeutic categories making it more difficult to generate positive investor returns – particularly in parts of the oncology, cell therapy and genetic medicine subsegments.
- The apparent lack of a government actor to help correct economic crises. In past major downturns (e.g., 2000 Bubble, Global Financial Crisis, Covid Pandemic) government was a major part of the solution. Today, if anything, government appears to be a major part of the problem – not the solution.
Sounds like it’s time for a beer here.
Or three.
We spoke to a group of biotech and pharma executives at an event sponsored by Indegene on Thursday morning, April 3rd.
This ended up being something like a real time focus group on what biopharma is thinking about tariffs and the Trump Administration. The conversation was very much about understanding the chess game that Trump is playing, what it means for pharma and how biotechs should enhance value and likelihood of survival through a tough time.
The conversation was serious, lively and open. It was evident that some companies have large cash piles and plan to use the next year to play offense, while others were in a much shakier spot and expressed obvious concern.
We would remind that Peter Kolchinsky of RA Capital reposted his 2022 article Dulcius ex Aspiris last week on LinkedIn. The article outlines the importance of prudence with cash and various steps to consider in times of financial stress.
Highly relevant again.
Kolchinsky also argued in 2022 that companies with extra cash should consider tendering for their own stock. It was as if Kolchinsky’s comments were unread. Not one biotech company did this. Company’s hold on to cash in our industry, thinking that they may never see it again.
We wonder if the thinking should be different this time around. Overwhelmingly, S&P 500 companies announced share buybacks the morning after the stock market crash in 1987. It was a major confidence-boosting move. With U.S. biotech down 19% in a single week and 40% of the industry trading for less than cash, for many it does seem like the right thing to do.
Other survival strategies for tough times include partnering non-essential regional rights or non-core programs. The royalty and debt markets are also wide open and selectively available to biotech.
Stifel has strong investment banking practices in both pharma partnering support and non-dilutive financing activity and, as you might imagine, conversations with clients were brisk last week.
We met with several senior industry executives on Friday April 4th and all conversations, of course, were focused on tariffs and the markets.
At this point we had seen the first big market drop.
We asked one senior venture capitalist about what new science he liked the most and what new types of companies was he looking at.
He shrugged his shoulders and said “why should I buy anything new? What about all the stuff I have already - where the price is down? What about that?”
After gently suggesting that he might try a holiday to clear his mind, he responded with a question to Stifel: “When is this pain going to end?”
Fair enough.
The Case for Optimism
OK, so let’s take on this unpleasant Socratic question:
When will the pain end?
There are two dimensions to this important question.
As to the near-term, we can’t tell you what will happen tomorrow, next week or even next month. With current futures pointing to another down day in the U.S. market on April 7, we can make a few obvious comments.
First, despite putting a brave face on matters, we believe that the Trump Administration is not oblivious to the markets. Treasury Secretary Bessent on Sunday publicly said that most Americans don’t own stocks but he and others in the Administration will be well aware of the broader effects of equity market declines on business confidence and investment. The Trump Administration has access to a range of policy levers, including the obvious one of a delay in tariff imposition.
Second, central banks are critical actors and could reasonably be expected to undertake near-term easing steps.
After the 1987 stock market crash, the Federal Reserve, led by Chairman Alan Greenspan, responded swiftly to stabilize the financial system. The day after the crash, the Fed issued a strong public statement affirming its readiness to provide liquidity, which helped calm market panic. It supported the banking system through open market operations, ensured access to the discount window, and maintained an accommodative monetary stance by keeping interest rates low. Behind the scenes, the Fed coordinated with major banks and brokerages to keep credit flowing and worked with foreign central banks to stabilize global markets.
After the shock of the COVID-19 Pandemic led to a 30% market drop in March 2020, the Federal Reserve took swift and unprecedented action to stabilize financial markets and support the economy. It slashed interest rates to near zero, launched massive quantitative easing with open-ended asset purchases, and introduced a suite of emergency lending facilities to support corporations, small businesses, and municipal governments.
The Fed also coordinated with global central banks to ensure dollar liquidity worldwide. Through clear communication and forward guidance, it signaled a commitment to maintaining low rates and supporting recovery. These measures helped restore market confidence, halted the financial panic, and laid the groundwork for a rapid economic rebound.
Federal Reserve policymakers are well aware of past lessons highlighted above by Friedman/Schwartz that restrictive monetary policy after tariffs led to the Great Depression. In our view, they are likely to announce accommodative monetary actions in the near-term.
Overall, we remain highly optimistic about the path of the biotech sector in the medium-term.
There are four key arguments that we think easily override the “doom and gloom” school of biotech thought.
First, for the first time in many months we are seeing Treasury yields come down to more reasonable levels. As of Monday’s open, the ten-year Treasury yield was at just under four percent. Even more impressive because of a strong jobs report on Friday.
This is down 80 basis points from the January high point in rates.
That’s a major move.
High rates have been the problem for biotech because they substantially raise capital costs. The explanation of lower rates is an obvious one. While tariffs have the potential to be inflationary, they are also contractionary for the economy. Thus, investors are expecting the Fed to be far more aggressive than before with rate cuts in the remainder of 2025. Fed Chairman Powell said on Friday: “While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Tax cuts that are supposed to accompany the Trump Tariffs should be expansionary and good for the market. We were surprised to see the U.S. Senate stay up Friday night and pass a tax cut package.
Republican self-preservation instincts appear to be at work.
We did not see that coming. If the House can shelve its differences and get a tax cut package through next week, we may see a reasonable market rebound emerge.
Second, the M&A market is strong this year and we think is going to get ever stronger. We have significant visibility into what is coming in M&A and expect to see an uptick in take-out activity in biotech and pharma in the remainder of 2025. Pharma is sorting out its position in Washington DC right now and has been a restrained on the M&A front while trying to make peace with the Trump Administration.
However, conversations with industry participants make it clear that big pharma is coming into the M&A market in a meaningful way in the remainder of 2025.
Third, there is an increasingly viable alternative to M&A. It’s called self-commercialization.
In the old days it would be rare for a biotech to get to the commercial stage and perform well. That has changed dramatically in the last 24 months. We are seeing launch after launch go well. The days of “short the launch” mentality are largely behind us. Examples of strong recent launches include those of Insmed, Madrigal, Tarsus and Verona. For many companies, there is now a credible “exit” alternative – which is called getting big and profitable. To quote John Houseman on the old Smith Barney advertisements: “They make money the old-fashioned way. They earn it”. Investor do not have to hold portfolios of biotechs praying that some get bought as much as before. The quality of assets, commercial planning and commercial teams has built up strongly across biotech in recent years.
Fourth, the innovation wave is getting stronger.
Sure, the Chinese are getting better and some slow moving Western biotechs are getting clocked by China.
But, overall, the quality of first-in-class innovation that is being developed right now is off the charts. The U.S. and Europe are the epicenter of this innovation and, if anything, the quantity and quality of innovation is creating operating space faster than the Chinese and other competitors can commoditize areas where they are good like bispecifics and ADCs. This acceleration of innovation reflects long-term investment in the underlying science. Technologies such as proteomic scanning, low-cost gene sequencing, single cell analysis, cryo-EM and the like have made it ever easier to sort out biological pathways behind major diseases and to generate pharmaceuticals that will address those pathways. Recent startups in ophthalmology, cardiology, obesity, immunology, oncology, endocrinology and the like have been stunning.
We are very much in a golden era of biology and our sector is going to benefit from this innovation for decades to come.
Investor Groups Lining Up to Support the Sector
Above we spoke about potential weakness of the hedge fund sector. We ought to note that there is strength in the community as well. We spoke to one hedge fund late Friday indicating that LP money has been coming in this week. They were up big last year and are down some this year because they are long-biased. However, they are seeing LP’s commit more and are in conversations to bring in substantially more. The above-mentioned fund of funds is also likely putting endowment money into the sector. We have spoken to other funds who are looking at opportunities to buy at today’s lower prices. We started seeing strength later Friday in some vaccine names and this reflected an interest to buy these names at what appear to be very low prices.
Bottom Line
This last week was brutal.
But this will pass, and the seeds of good times have been planted.
To quote the quarterback Troy Aikman: “Things are never as good as you think they are or ever as bad as you think they are.”
History favors the bold:
- Tariff fears may fade as political backlash grows.
- Lower rates + M&A + innovation will drive recovery.
So, while it’s easy to get lost in pessimism, the medium-term outlook remains bright. The sector has weathered worse—and emerged stronger.
Best,
Tim Opler
Managing Director
Stifel Investment Banking
Direct Phone: +1 212-257-5802
oplert@stifel.com |
