Biotech Stocks Have Struggled Since 2021. Why They’re Coming Back.

(Illustration by Elias Stein)

Something unusual is happening to biotech stocks: They’re going up. A drug-pricing deal between Pfizer and the White House and a spate of deals have sent the SPDR S&P Biotech exchange-traded fund up 9.5% since Sept. 25—16.6% on the year.

Biotech hit the doldrums nearly five years ago. The stocks ran up in 2020, the first year of the pandemic, on low interest rates and a biopharma investor focus. That bubble popped in February 2021, and the SPDR Biotech fell by more than 50% by June. Too many biotechs of questionable quality went public during the pandemic, leaving specialist cash tied up in dead-end names. And higher interest rates reduced speculative bets.

Now structural problems may be clearing. A shutdown wave freed specialist capital, worries about administration drug-price plans are easing, and interest-rate cuts could move investors toward riskier sectors. Plus, Big Pharma needs new drugs as the likes of Pfizer and Merck contend with patent cliffs, a recipe for M&A. Deals are tough to predict, writes Mizuho Healthcare equity strategist Jared Holz, but “the adversarial political climate potentially easing a bit should be more helpful than not.”

“Investors are naturally jittery, since prior rallies haven’t been sustained,” note Cantor Fitzgerald‘s Josh Schimmer and Eric Schmidt. “But we’re also in uncharted territory with a sector that is increasingly profitable. Maybe this time it’s for real?”

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

Last Week

Markets

Japan’s ruling Liberal Democratic Party elected Sanae Takaichi, who may become its first female PM. Japanese stocks hit highs, but the yen fell. The U.S. government shutdown continued. Gold broke $4,000 an ounce. Stocks fell on Tuesday after a seven-day S&P 500 rally, then set new highs before falling on Thursday. President Trump’s get-tough on China trade talk, including 100% additional tariffs, left stocks down for the week, with the Dow industrials off 2.7%; the S&P, 2.4%; and the Nasdaq Composite, 2.5%.

Companies

Tesla unveiled a cheaper version of its Model Y. Advanced Micro Devices signed a five-year deal with OpenAl to run data centers on AMD chips. OpenAI could end up with a 10% stake in AMD. The U.S. took a 10% stake in a five-person Vancouver mining company, Trilogy. AstraZeneca licensed Algen Biotechnologies’ artificial-intelligence gene-editing platform for $555 million. UBS and Jefferies admitted their funds took hits from the First Brands’ bankruptcy; a creditor, Raistone, said $2.3 billion had “vanished.” As U.S. farmers harvest a bumper soybean crop, Chinese buyers have disappeared; a bailout is expected. China also tightened rare earth export controls.

Deals

Fifth Third Bancorp said that it struck a $10.9 billion deal for Comerica …SoftBank has agreed to buy ABB’s robotics unit for $5.4 billion… HSBC offered $13.6 billion to take private the 37% of Hang Seng Bank that it doesn’t own.

Next Week

Monday 10/13

Fixed-income markets are closed in observance of Columbus Day.

Tuesday 10/14

Third-quarter earnings season gets under way with BlackRock, Citigroup, Goldman Sachs Group, Johnson & Johnson, JPMorgan Chase, and Wells Fargo reporting results on Tuesday. Abbott Laboratories, ASML Holding, Bank of America, Morgan Stanley, Prologis, and United Airlines Holdings follow suit on Wednesday. Charles Schwab, Taiwan Semiconductor Manufacturing, and U.S. Bancorp release earnings on Thursday, and American Express closes out the week on Friday.

Wednesday 10/15

The Federal Reserve releases the beige book for the seventh of eight times this year. The report gathers anecdotal information on current economic conditions from the 12 regional banks.

Thursday 10/16

The Census Bureau is slated to release retail sales data for September. Consensus estimate is for a 0.4% month-over-month increase, two-tenths of a percentage point less than in August.

The Numbers

1.8 T

The U.S. budget deficit in fiscal 2025, little changed from 2024, despite rising tariff revenue.

0.72%

The recent yield premium of U.S. corporate bonds to Treasuries, the lowest level seen since 1998.

$33 B

How much investors have pulled from the SPDR S&P 500 ETF, on track for the largest annual outflow ever.

80%

The percentage of U.S. workers who say they’re making little or no progress toward their retirement goals.

Write to Robert Teitelman at bob.teitelman@dowjones.com