The overall gloom in public market sentiment did not lift last week.
We continue to hear concerns about inflation and Treasury rates as a key brake on biotech market performance.
In a sort of surreal Trumpian moment we saw Larry Ellison of Oracle talk up mRNA stocks at the announcement of Project Stargate, an AI investment project.
We also saw Larry Summers, economist and former Treasury Secretary speak of the huge potential for biotech innovation at the World Economic Forum, arguing that ‘Miracle’ drug innovation could see a new Wegovy launch every couple of years henceforth.
While normally one would hope that biotech insiders would get attention for talking up the sector, it does appear to be a tech world today.
So, why not accept from free publicity from the likes of Larry Ellison?
A further brake on biotech stocks has been concern about the balance sheet condition of specific hedge funds. There were quiet reports of forced selling caused by fund redemptions in December.
We spoke to one knowledgeable fund of funds manager who indicated that this stopped in January but worries in the market have persisted. We have received more than a few calls on this topic from trading desks.
Another fund manager expressed concern last week that a mid-sized fund was busy covering their short book due to pressure that they were under.
Our experience at Stifel is that it remains a “haves” and “have nots” biotech market.
On the one hand, we were an underwriter on the Disc Medicine follow-on last week which was upsized. We also saw the Ascentage IPO price and four other IPOs are publicly on file for possible near-term transactions.
A minority of investors remain uncomfortable, in general, about buying new paper and are not keen to wall cross on new PIPE offerings until this year’s market direction is clearer.
This is a market best described as “mixed”. Perhaps “uncertain” or “skittish.”
One of the oddest things last week was how little remark was made regarding the reasonably robust rally in the XBI.
This was accompanied by a rally in stocks more generally. While its early days in the Trump Presidency, pro-inflationary tariffs have yet to appear. This was a relief to financial markets last week. The S&P 500 index hit an all-time record on Friday.
We noted no stories in the media and not a single positive call with an investor or other market commentator on the recent rebound in the XBI.
The XBI was up over 5% last week.
We spoke to three knowledgeable parties about this. None of them were particularly aware that that the market was up at all, and one said it was caused by short covering. Another attributed it to the pop in Moderna stock and a third offered no explanation.
Our own sense is that there is a vast disequilibrium between biopharma stocks today and the broader market, at least in the U.S.. One observer we spoke to last week noted that the weight of healthcare stocks in the S&P 500 is at a twenty-year low. We have not checked this but it certainly feels right. Many large endowments, sovereign funds and wholesale capital pools remain heavily underallocated to healthcare and biotech.
The conditions for a biotech rally certainly seem to be in place: (1) relative undervaluation, (2) improving macro picture, (3) a stronger M&A environment and (4) underlying positive fundamentals.
And don’t forget: random sector endorsements from famous people with a first name of “Larry”. JJJ
A further odd disjuncture in today’s market is the difference in view between private market and public market participants in biotech. This is the time of year when we check in with many VC’s to see how they are doing, what they like in their portfolios etc. Without fault, we have found VC’s are really pumped about how good their portfolios are right now.
We have to agree. When we listen to what is scheduled to take place in 2025 with various investments in the venture area we have been struck by the shift towards “high innovation” companies. A lot less “me too” investments happening right now.
It’s hard not to get excited when you hear what’s in the works in the venture investment community.
While VC’s in general remained preferenced toward clinical stage assets we have also heard a willingness to go earlier and to invest in emerging technologies and platforms.
There is plenty of dry powder in the biotech venture community today and most groups are not that worried about the public markets.
We very much enjoyed last week’s essay on the JPM25 conference by Aimee Raleigh, a Principal at Atlas Venture. She wrote: “Another JPM is behind us, and while much of the small talk was centered on the beautiful weather, impressive sea of pink in support of the Biotech CEO Sisterhood, and Monday’s deals (congratulations to ITCI, Scorpion, and IDRx teams!), overall sentiment was bifurcated. While many early-stage private VCs (and especially those participating in recent M&A) are feeling good going into 2025, public investors lamented the poor performance of public portfolios and indices. “
Another area where dry powder appears to be plentiful is the M&A market. The year is off to quite a strong start on M&A volume. In the first three weeks of 2025 we have seen M&A volume of $21.6 billion.
Aimee Raleigh wrote last week: “Ultimately investors are judged on their exits, so M&A and public portfolio performance will continue to play an oversized role in sentiment for 2025. On the former, Pharma patent cliffs continue to loom large and thus will likely drive sustained acquisitions for clinical or near-clinical plays. On the latter, we are still seeing strong data being rewarded (e.g., BMPC, DNLI, others last week). Even if stocks aren’t at their all-time highs, there is opportunity to pick winners and do well in this market, especially considering some of the undervalued names.”
A number of observers have been arguing that the Intra-Cellular takeout by J&J was a bit of an exception and that we remain in a low M&A year.
J&J held its earnings call last week in which they made it clear that this was a large deal for them and that investors shouldn’t except more deals like this from J&J anytime soon.
This isn’t surprising. It would be unusual to see one company undertake a series of $10bn+ M&A deals in any given year. But we do think it’s likely that we will see more $10bn+ deals from others this year.
Investors are obviously hungry for more M&A to lift the sector and seem impatient that there hasn’t been even more M&A this year (never mind that we are on a pace for more than 50 $1bn+ deals in 2025).
We understand, it would be great if there would be a lot more M&A done by now.
But, consider this.
If you were to exclude the Intra-Cellular deal this year you would have seen $7 billion in M&A thus far in 2025. That is 1.5 times more than all M&A in the first three weeks of 2024; twice the amount of all M&A in the first three weeks of 2023 and 1.7 times the amount of all M&A in the first three weeks of 2022.
Another way of thinking about it is as follows: were the M&A pace of the first three weeks of 2025 to continue, we would surpass 2024’s full-year M&A dollar volume total in the first quarter of this year.
By any measure, 2025 is looking like a much better M&A year than last.
We would note that based on our own pipeline at Stifel and recent conversations with others in the market, we believe it’s going to be quite a strong year for both M&A and licensing type deals. We do expect to see more U.S. biopharma takeouts, more China deals and more “high science” type private deals take place in the months to come.
Time will tell.
Back to the XBI: Why Did it Pop Last Week?
The big risers in the XBI were not heavily shorted so the short-selling story does not hold water. The Moderna story was only a small part of the XBI uplift. A tenth of the rise in the XBI was caused by the 21.6% pop in Moderna stock. The real cause of the rally was buying in select liquid mid/large cap biopharma and diagnostic names.
Roughly half the pop in the XBI can be attributed to good performance in a dozen stocks which are (in order): Moderna, Alnylam, Summit Tx, Madrigal, Insmed, BridgeBio, Exact Sciences, Cytokinetics, Ionis, Natera, Twist Bio, Vaxcyte and Neurocrine.
Basically, we saw heavy buying last week in liquid, larger cap high quality life sciences stocks. These stocks tend to be commercial stage or, at least, have late-stage assets.
Last week was quite strong for the life sciences sector with big gains in biotech, CDMO’s, HCIT, diagnostics, commercial pharma, pharma services, medical devices and life science tools.
More generally, it looks to us like selected long funds are rotating into life sciences large caps.
In total, the value of global life sciences large caps popped by $274 billion last week.
Roughly a third of this value change took place at Lilly and Novo. Other big gainers were Abbott, Roche, AZ, BMS, Thermo, Danaher, Sanofi, Boston Scientific, Samsung Biologics and Vertex.
Since the year began, companies with a market cap over $100bn are up 4.1% as a group; those with market caps in the $10bn to $100bn bucket are up 3.6% as a group. In contrast, companies with market caps of $100mm to $10bn are down for the year, on average.
Further, since 2025 began we have seen the average pre-clinical biotech stock decline by 14% in value. In contrast, the average biotech in Phase 3 has gained 9% in value.
At the subsector level of U.S. biotech, the big up moves so far in 2025 have been associated with strong performance of stocks in vaccines and AI.
For the first time since the Pandemic, the average AI biotech has a value over $1bn.
We have seen meaningful drops in the value of RNA therapy and nephrology stocks in the last three weeks.
Capital Markets and Deals Update
Ascentage Pharma, a Chinese cancer drug developer raised just over $126 million in the first U.S. initial public offering by a biotechnology company last Tuesday. This was technically not an IPO as the company was already public on the Hong Kong exchange.
Reflective of weak investor sentiment, it has been a soft January for follow-on equity offerings. The first three and a half weeks of 2025 have seen $1.8 billion in follow-on biopharma offerings. This is well below the $1bn a week pace of activity that was seen in Q4 2024. We expect that clarification of market uncertainty will help revive this market in the months ahead.
The market for venture privates has seen $4.1 billion in issuance in the first three and a half weeks of the year. This pace is up 50% from what we saw in Q4 last year.
We have seen $800 million in private debt deals get done so far this month. This is well below the blistering pace seen in Q4 2024.
We have seen $21 billion in M&A volume in the first three and a half weeks of 2025. This is one of the strongest starts to the year seen in a long time. One key exception year was 2019 when we saw the Celgene acquisition announced on the Jan 3rd. One comparison metric is the number of $1bn+ deals announced. So far this year, we have seen three such deals. Compare this to 15 total $1bn+ M&A deals seen in all of last year.
Bain published an excellent report this month on trends in the healthcare private equity market. Last year was substantially stronger in volume than 2022 and 2023. Biopharma and related services led all other segments in deal value in 2024, The average hold time for a PE investment, however, is almost nearly three times longer than it was in 2010.
Industry Update
Trump has wasted no time in making his presence felt in places like the CDC, FDA, HHS and NIH. We are seeing NIH study sections cancelled, a slowdown at FDA in various routine industry meetings, withdrawal from WHO and the freezing of foreign aid – with attendant negative effects on efforts to control Marburg and bird flu.
There are two narratives as to what might be going on. The first narrative, highlighted in various stories in Science, is that the Administration is not pro-science and is seeking to throw sand in the gears of various attempts to apply science to combat disease. A second more charitable narrative is that the Administration is simply trying to take control of things and assess what is actually going on while its appointees get through the Senate.
We are hopeful that the second narrative is the right one.
A very nice study appeared last week from McKinsey entitled “Closing the Women’s Health Gap: Biopharma’s Untapped Opportunity.” Authors Lucy Perez, Marie Busson and Valentina Sartori wrote: ““Nearly half of the global population—and 80 percent of patients in therapeutic areas such as immunology—are women. And yet, treatments are frequently developed without tailored insights for female patients. Too often, researchers have viewed “women’s health” narrowly through the lens of reproductive organs, treated women as “small men” for other conditions, and ignored critical biological differences such as cellular sex (every cell in the body has a sex), hormonal impacts, and genetic factors. Addressing these differences is not just about equity—it drives more precise and effective healthcare for everyone.”
Their study carefully documents a number of key points including:
- Pharma are already big in women’s health but may not know it
- Sex-based drug development matters
- Achieving sex parity in drug adoption and efficacy can drive major live saving
Another study appeared last week from the IQVIA Institute entitled “2025 Indicators of Progress for the Life Sciences Sector.” The authors wrote: “The year ahead for the life sciences sector will be defined by advances in science, research and development, marketplace dynamics, economics, and politics. There will be successes and challenges along the way, and no shortage of uncertainty. This research brief outlines several factors that can be used as indicators of positive progress in 2025 for the life sciences industry across multiple domains, including industry reputation, research and clinical development productivity, biotech funding, early intervention, therapeutic innovation, patient access to healthcare services, and health policy.”
The ten key indicators highlighted in the study are all worthy ones:
- Greater trust in life sciences companies
- Reduction in out-of-pocket costs for patients
- Expanded patient access to healthcare services
- Inclusive progress on the “Make America Healthy Again” (MAHA) agenda
- More focus on disease prevention and early intervention
- Restored growth in the emerging biopharma sector
- Improvements in clinical development decisionmaking, processes, and technology deployment
- Expanded use of novel advanced therapies
- Higher Freshness Index for life sciences company product portfolios
- Increased contribution from markets outside of the U.S. to global sales of life sciences companies
Yet another start of the year study from BCG looked at the pharma sector as a whole with numerous interesting insights. A couple that grabbed our attention were:
- Pharma companies with more focused portfolios have seen higher returns;
- First-in-class products are more important in the market today than before; and
- The upcoming LOE’s include far more biologics than before.
The focus on aging is continuing to grow and this area appears likely to become an important industry theme in the next decade. Last week saw news reports that Retro Biosciences is completing a $1 billion raise with a cell replacement strategy. The idea is to take out your old cells and replace them with young ones.
Another move last week was by the aptly named BioAge which cut a big deal around targets in aging biology with Novartis.
We were most impressed by the publication of Phase 3 pain relief data by Tris Pharma for cebranopadol, a dual NMR agonist. This drug works by agonizing dual-nociceptin/orphanin FQ peptide (NOP) receptor and µ-opioid peptide (MOP) receptor. This dual-NMR agonist has the potential to deliver significant pain relief comparable to opioids with minimized risk of significant side effects, dependence and addiction by leveraging the body’s pain biology modulation processes, synergizing the analgesic and safety characteristics of the NOP receptor with the analgesic advantages of the MOP receptor.
The data were some of the best we’ve ever seen and show better pain relief than what has been seen with Vertex’s drug in this area. Tris also showed an impressive side effect profile and has run a separate dependence study showing that the drug does not create dependence among chronic users.
Obesity Drug Market Update
A story last week in the Financial Times was entitled “Investors Lose their Appetite for the Obesity Trade”.
Timing is everything in life and this story hit the day before Novo reported stunning amycretin data.
We’re not so sure investors have lost their interest in obesity drugs although we agree with the authors that sales and stocks have been volatile.
Last week saw Novo and Lilly shares add almost $100 billion in value.
Investor interest in the obesity area remains quite strong.
As for Amycretin Novo reported 22% weight loss at 36 weeks with Amycretin.
By any measure, these are impressive data.
However, they are not reported on an ITT basis and only include weight loss for responders. Further, Novo did not report dropout rates or AE rates so it is difficult to assess whether this drug might be therapeutically relevant.
It’s interesting that amycretin performed so much better than cagrilintide which has the same MOA.
We have reviewed what we think the patent is for amycretin. It’s important to note that this is a particularly complex molecule – with all that this implies for CMC costs and the like.
Other recent data releases have also been impressive. We update a chart showing weight loss for various agents by time.
What sticks out to us is Kailera’s data for HRS9531. This agent also reported 36-week data in January but showed us what the side effects are, and the data were shown on an ITT basis. HRS9531 was, in fact, associated with a full 22% weight loss on a placebo-adjusted ITT basis.
Wow!
This drug and retatrutide appear to be the two most important to beat. Kailera has a big task ahead – which is to replicate the China data in a U.S. Phase 3 study. Lilly also has a big job with retatrutide which is to finish its Phase 3’s and show that its drug has an acceptable side effect profile.
In contrast, Amgen’s MariTide data appear far off the mark for weight loss. But, interestingly, MariTide performed quite well in diabetics and may end up being a better drug for that population (the same can be said of Cagrilintide).
LEK published a nice report this month on the obesity drug market which showed that 13 agents for obesity are expected to be approved in the 2028 to 2031 window.
That’s a whole lot.
This is the time when semaglutide will go generic. These new competitors will obviously need to differentiate themselves against this inexpensive competition to justify a non-generic price.
A tour de force paper appeared last week Nature Medicine that used Veteran’s Administration real world evidence to assess differences in outcomes of patients treated with GLP-1’s for obesity and diabetes than SGLT2’s and DPP4’s.
The study compared outcomes from a stunning 215,970 persons who got GLP-1s to over a million individuals who got other types of treatment (usual care).
There was an increased risk of gastrointestinal disorders, hypotension, syncope, arthritic disorders, nephrolithiasis, interstitial nephritis and drug-induced pancreatitis associated with GLP-1RA use compared to usual care.
On the other hand, patients getting GLP-1s saw massive benefit on numerous fronts and were far less likely to experience shock, pneumonitis, hepatic failure, respiratory failure, cardiac arrest, schizophrenia, pulmonary hypertension etc.
The takeaway for us is that we have only begun to scratch the surface of what good can be done with GLP-1 type treatments.
Two interesting science papers relative to the obesity area appeared last week. One paper by Fayt and colleagues in Nature Microbiology showed that the preference for dietary sugar is modulated by Free Fatty Acid Receptor 4. Another paper by Wang et.al. in PNAS showed that BCL6 is a key protein in regulating muscle growth.
All amazing scientific progress.
Best,
Tim Opler
Managing Director
Stifel Investment Banking
Direct Phone: +1 212-257-5802
oplert@stifel.com
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