Biotech Stocks Under Pressure: Will the Bottom Soon Be Reached?

According to MarketWatch, the biotech sector is currently one of the most unpopular sectors on the stock market. However, experts see signs that negative investor sentiment about biotech stocks may soon be reaching its lowest point. If this proves to be true, now could be a good time to enter.

Why investors are currently cautious about biotech stocks

According to MarketWatch, the biotech sector is currently burdened by several concerns and fears, some of which are likely unfounded. For example, investors are being unsettled by the U.S. government’s planned budget cuts in the healthcare sector. The Department of Government Efficiency (DOGE) has already reduced the research budgets of the National Institutes of Health (NIH), and the U.S. Food and Drug Administration (FDA) may face staff cuts.

However, according to the news site, analyst Michael Yee of the investment bank Jefferies believes that these savings are unlikely to have much of an impact on the biotech sector. The cuts in NIH funding would primarily affect academic or early-stage research and are unlikely to have “a direct impact on medium-term outcomes in biotechnology,” MarketWatch quotes him as saying.

At the FDA, too, important areas of drug regulation have so far been exempt from the cuts. In addition, several biotech companies recently emphasized to Yee that they had not noticed any delays or changes in the FDA approval process.

According to MarketWatch, biotech investors are also concerned that US President Donald Trump has appointed anti-vaccine activist Robert F. Kennedy Jr. as Secretary of Health. He could potentially “run amok,” the news portal reports. So far, however, he appears to be focusing more on food safety and nutrition issues than targeting the biotech industry.

Another risk factor cited is price regulations for medications, as these are often significantly more expensive in the US than in other countries. If drastic price controls were to be implemented, biotech companies could suffer significantly.

However, according to MarketWatch, Morningstar analyst Karen Andersen estimated the probability of this happening under the current Republican administration at less than 10 percent. In her opinion, a conservative administration would be more likely to focus on pharmacy benefit providers that reap discounts without fully passing them on to patients.

Jefferies also points out that only 37 percent of biotech companies reported successful Phase II and Phase III trials in the first quarter – a very low figure, although higher than the 33 to 35 percent in the second half of 2024 and possibly marking the beginning of a turnaround.

Has the biotech sector already reached its lowest point?

Given these concerns—even though many of them have so far proven unfounded—it’s understandable why investors are currently staying on the sidelines when it comes to biotech stocks. However, Michael Yee of Jefferies believes that sentiment may already be too pessimistic, and a turnaround may be imminent.

According to MarketWatch, the analyst pointed out that small and medium-sized biotech companies recently traded at an enterprise value -to-cash ratio of only 1.2. However, the historical average is 3.0. Furthermore, 23 percent of small and medium-sized biotech companies are currently valued at a market capitalization equal to or even lower than their cash holdings. “Biotechnology appears cheap at these levels,” Yee said.

A Jefferies survey also revealed that investment fund and investor exposure to the biotech sector was recently at a low. “Everyone is so negatively positioned. This is probably a buying opportunity,” Yee is quoted as saying by MarketWatch. All of these factors could therefore indicate that sentiment has already bottomed out—and things are likely to start trending upwards again from now on.

What factors support growth in the biotech sector

According to MarketWatch, there are also several arguments that point to a positive future development of the sector. Biotech stocks could receive a boost if there are more acquisitions and mergers under US President Trump. “We expect more deals to be approved under a Republican administration,” says Jefferies expert Yee. Furthermore, many large biopharmaceutical companies are about to see some blockbuster patents expire, which could lead them to seek out promising biotech companies to strengthen their product pipelines.

Another glimmer of hope is an expected report from the U.S. government, specifically from the Senate National Security Commission on Emerging Biotechnologies. According to MarketWatch, the report is expected to be released on April 7, classifying biopharmaceuticals as critical to national security. It could also include recommendations on how to promote the development and manufacturing of drugs domestically. If this is the case, it could provide significant momentum for biotech companies and rekindle investor interest.

Which biotech stocks currently have potential

As already mentioned, small and mid-cap biotech companies have been particularly hard hit by the sector’s weakness, according to Jefferies. Therefore, analyst Yee now sees the most attractive buying opportunities here. “Compared to historical prices, small and mid-cap biotech companies appear very cheap,” Yee said, according to MarketWatch.

Examples of such companies that might currently be of interest to investors include Denali Therapeutics , which plans to soon apply for FDA approval for its DNL310 therapy for Hunter syndrome and is expected to receive the green light by the end of the year, and Biohaven Research , where insiders have been making significant purchases since the end of December. Structure Therapeutics , Insmed , and SpringWorks Therapeutics are also considered potential acquisition candidates and could therefore be attractive to investors.

While the shares of Denali Therapeutics, Biohaven, and Structure Therapeutics have lost more than 30 percent of their value on Wall Street since the beginning of the year, the shares of Insmed and SpringWorks Therapeutics have so far shown gains in 2025. However, these two stocks are still far from their all-time highs (as of closing prices on April 3, 2025).

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