Biotech shares are under pressure, but a Jefferies analyst sees light at the end of the tunnel. According to him, several indicators indicate that the low point in the papers could be reached. Which risks still exist and which growth factors investors could give new hope.
• Numerous worries burden biotech shares
• may be too bad
• Analyst currently considers industry titles to be cheap
According to “Marketwatch”, the biotech sector is currently one of the most unpopular industries on the stock exchange. But experts see signs that the negative mood of investors will soon have reached their low point. If this is true, it could now be a cheaper entry time.
Why investors are currently careful with biotech shares
According to “Marketwatch”, the biotech sector is currently being burdened by several worries and fears, some of which should be unfounded. For example, investors would be unsettled by the budget cuts planned by the US government. Because the Department of Government Efficiency (Doge) has already reduced the research budgets of the National Health Institute (NIH), and the US medicinal factory authority FDA could possibly have to be dismantled. Analyst Michael Yee from the investment bank Jefferies, however, believes that these savings should hardly affect the biotech sector. The reduction in NIH financing would primarily affect academic research or research in the early stages and is likely to have no “direct effects on the medium-term results in biotechnology,” quotes “Marketwatch”. In the FDA, too, important areas of drug regulation have so far been exempt from cuts. In addition, several biotech companies recently emphasized that they had not previously perceived any delays or changes in the approval process at the FDA.
In addition, according to “Marketwatch”, biotech investors are concerned that US President Donald Trump made Robert F. Kennedy Jr. Minister of Health. This could possibly run “amok”, the news portal says. So far, however, he seems to focus more on food safety and nutritional topics than to target the biotech industry.
Another risk factor is price regulations for medication, because these are often significantly more expensive in the United States than in other countries. If there are drastic price controls, biotech companies could suffer greatly. Morningstar analyst Karen Andersen put the probability of this under the current government of Republicans, however, according to “Marketwatch” to less than ten percent. In her opinion, a conservative government would rather concentrate on pharmacy service providers that would collect discounts without passing them on to patients completely.
Jefferies also points out that only 37 percent of the biotech companies would have reported successful phase II and phase III studies in the first quarter-a very low value, even if it is higher than the 33 to 35 percent in the second half of 2024 and possibly the start of a trend reversal.
Has the low point in the biotech sector already reached?
In view of these worries – even if many of them have remained unfounded so far – it is understandable why investors prefer to stay on the sidelines for biotech shares. However, Michael Yee von Jefferies believes that the sentiment could be too pessimistic at the moment and that it may be a trend reversal.
According to “Marketwatch”, the analyst pointed out that smaller and medium-sized biotech companies were most recently traded with a company value-quality ratio of only 1.2. However, the historical average is 3.0. In addition, 23 percent of the small and medium-sized biotech companies are currently evaluated with a market capitalization that corresponds to their cash stock or is even lower. “Biotechnology appears cheap at this level,” says Yee.
A survey by Jefferies also showed that the commitment of investment funds and investors in the biotech sector was recently at a low. “Everyone is so negative. This is probably a purchase opportunity,” Yee is quoted at “Marketwatch”. All of these factors could therefore indicate that the sentiment has already reached the sole of the valley – and from now on it should go up again.
What factors for growth in the biotech sector speak
According to “Marketwatch”, there are also some arguments that would speak for a future positive development of the sector. Biotech shares could receive a thrust if there will be more takeover and mergers under US President Trump. “Under a Republican government, we expect more deals to be approved,” said Jefferies expert Yee. In many large biopharma companies, some blockbuster patents would soon expire, which is why they could look for promising biotech companies to strengthen their product pipelines again.
Another glimmer of hope is also an expected report by the US government, more precisely from the National Security Commission of the Senate for New Biotechnologies. According to “Marketwatch”, it is expected to present a report on April 7, in which biopharmacy is classified as crucial for national security. This could also contain recommendations on how the development and production of medication can be promoted in Germany. If this is the case, this biotech company could give considerable tailwind and infer investors’ interest.
What stocks currently have potential
As already mentioned, smaller and medium-sized biotech companies were particularly strongly affected by the weakness of the sector, according to “Jefferies”. Therefore, analyst Yee now sees the most attractive purchase opportunities. “Compared to historical courses, biotechnology companies with small and medium -sized market capitalization appear very cheap,” says Yee according to “Marketwatch”.
Examples of such companies that could currently be interesting for investors are Denali Therapeutics, which will soon be able to apply for the FDA approval for his DN310 therapy against Hunter syndrome and should probably have received the green light by the end of the year, as well as Biohaven Research, where insiders have been bought in a lot since the end of December. Structure Therapeutics, Insmed and SpringWorks Therapeutics would also be considered potential takeover candidates and could therefore be attractive to investors.
While the papers from Denali Therapeutics, Biohaven and Structure Therapeutics on Wall Street have previously lost more than 30 percent in value, the shares of Insmed and Springworks Therapeutics have so far been available in growth. However, these two titles are still a long way from their all -time highs (as of April 3, 2025).
Editor finance.net
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