The trends may be turning in favor of biotech stocks in 2025 after several years of poor performance, but it would still be wise to bet carefully on some of the most innovative names. “We're still optimistic about the prospects for biotech,” Stacey Sears, senior vice president and portfolio manager at Emerald Advisors, said in an interview with CNBC. “I think the poor performance [makes them] attractive.” The SPDR S&P Biotech ETF (XBI) is up more than 2% so far this year, but is down 9% just since the election as investors wonder what changes the Trump administration will bring. Investors will gain clarity on the regulatory framework and political environment in the coming months, Sears said, but in the meantime the current uncertainty is creating an opportunity, especially among the small- and mid-cap stocks she monitors. shortage of mergers and acquisitions and high interest rates, which raised companies' cost of capital and remained volatile even after the Federal Reserve began cutting earlier this year, but innovation has been advancing and the new year is likely bring with it a new round of approvals and drug launches that could drive shares higher, analysts say, if returns cooperate, “and then we'll finally start to get a more significant rebound in M&A activity, along with continuous progress from a perspective clinical, I think.” that will bring eyes back to the group,” Sears said. more than $300 billion in revenue by 2028, and will look to innovative biotechnologies to fill the gaps, according to Yuri Khodjamirian, chief investment officer at Tema Funds. “The gap really widened this year, but it will get stronger through the 25th and 26th,” he said. Terry Smith, director of life sciences research at Emerald, expects neurology, immunology and inflammation, oncology and metabolism to be clinical areas most attractive to Big Pharma, but he doesn't anticipate a speculative stock buying frenzy to broadly boost the sector when M&A activity resumes. “That's why we think an active strategy is really important because there are. that select them,” Smith said. “You can't just own the entire index.” Emerald declined to provide specific stock picks for next year. Analysts at Goldman Sachs see AbbVie, Biogen, Johnson & Johnson, Merck and Roche as the most likely acquirers. Merck is better positioned with “capital, need and positioning” and a track record of recent successful deals, while Johnson & Johnson can “pursue a sizeable target” after a series of smaller deals, he said. Insmed: Pivotal Year Ahead Insmed is a Buy-rated stock on Goldman's conviction list, and the company's analysis suggests it could be an attractive acquisition target. The stock is up nearly 125% in 2024, and all analysts covering the rare disease researcher rate it a buy or overweight, according to FactSet. On average, analysts see an increase of more than 28% from Friday's close. Next year “is set to be another year of value creation for INSM through business execution and clinical data catalysts,” Goldman analyst Andrea Newkirk wrote in a research note earlier this month. INSM YTD mountain Insmed actions so far this year. He explained that the company's peak global sales estimate for brensocatib of $5.9 billion “probably” significantly underestimates the drug's true potential. She anticipates it will be approved to treat a chronic lung condition known as bronchiectasis by the middle of next year, but there could be greater benefits if its use were expanded to other diseases. Insmed also has other respiratory assets in its portfolio, which could push peak annual sales to $8.2 billion, he said. Barclays analyst Leon Wang also likes Insmed, but his focus is on clinical data expected in the second half of next year on treprostinil palmityl inhalation powder, or TPIP, in pulmonary arterial hypertension, or blood pressure. high in the lungs. “We have a positive bias in this reading and are looking for superior efficacy compared to the standard Tyvaso treatment,” Wang wrote in a note to clients in mid-December. “…In all, H2'25 could transform INSM into a multi-commercial product company that is launching pivotal studies in two big indications.” Legend Biotech: Poised for a Rally In the oncology space, several Wall Street analysts are optimistic about Legend Biotech's prospects. Shares of the CAR-T specialist have fallen 46% so far this year, but the average price target, collected by FactSet, predicts the stock could soar 147% from Thursday's close. LEGN Mountain to Date Legend Biotech Stock Year To Date “LEGN stock was overly punished for what we consider an unfair comparison of clinical data vs. [ Arcellx’ s] anito-cel, as well as lingering concerns about China risk, especially given that the new administration will take office in January 2025,” wrote Barclays analyst Gena Wang, referring to clinical data that rival Arcellx presented in the American Society of Hematology conference on December 9. “We believe the facts speak for themselves and we hope [Legend’s] Carvykti will launch a rebound in 2025 with potential ~100% YoY growth for 2025 and 2026, driven by ongoing execution of manufacturing capacity expansion, label expansion into earlier multiple myeloma line with likely data CARTITUDE-5 positive results in 2025, as well as an outstanding and continued clinical profile with more mature data to establish itself as an industry leader,” said Wang. Piper Sandler has named Legend one of its focus biotech stocks. The bank said demand is so great that there is room in the market for both Legend and its partner Johnson & Johnson, and Arcellx, in collaboration with its partner Gilead Sciences,. succeed. 'Stick to what you can measure' Legend was also among the names that Morgan Stanley biotech analysts highlighted in their 2025 outlook. “We expect stocks that have a product with an existing market position combined with an expansion of tag will perform best in 2025,” the team wrote on December 16. description as well as companies such as Argenx, Beigene, Sarepta Therapeutics and Rhythm Pharmaceuticals, among others. According to Morgan Stanley, its key theme for 2025 is to “stick to what you can measure.” Legend is in the easier segment than can be measured, as it has an existing product that has the potential to increase sales. The company's next segment includes stocks like Insmed and Jazz Pharmaceuticals that have a recent drug approval or imminent product launch as a key driver. The final group they compiled was a list of companies that have “material catalysts” that could lead to commercialization beyond next year. This more speculative group includes Rocket Pharmaceuticals, a company developing a treatment for Danon disease, a rare inherited disorder that usually leads to fatal heart problems. Rocket shares are down nearly 61% so far this year, and consensus price targets suggest an increase of nearly 285% from Friday's close, according to FactSet. Morgan Stanley expects a catalyst for the stock in late 2025, when data is expected from the Phase 2 trial for Rocket's RP-A501 gene therapy. These are just a sample of the innovations biotech analysts are watching and why they are hopeful that performance in the sector will improve. “You can only have so many bad years, right?” Khodjamirian said of Tema. “At some point valuations start to look very attractive. If you look at healthcare 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 seen.” certainly in the last 20 years.
