Biotech Shows Signs of Life
Here's why biopharma could soon sprout into a solid opportunity for investors.
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I feel like I have been harping on this topic throughout 2025: It is hard to find value in the current market. How does one assess a market where OpenAI garnered a $500 billion valuation last month? This is a company that had $4.3 billion worth of revenues in the first two quarters of this year while it was burning through $2.5 billion in cash. The beaten down energy sector appears a logical place to look for value. I plan to explore that in greater detail in a column next week.
But here I am going to circle back to the pharma and biotech sectors, both of which are showing some solid signs of life lately. As I mentioned in my column on Wednesday, there were three significant acquisitions of mid-cap biotech names with significant buyout premiums in the back half of September. The rekindling of these animal spirits has turned some of my biggest laggards of 2025 in my portfolio like Intellia Therapeutics, Inc. (NTLA) into big winners in recent weeks.
Big pharma names like Novo Nordisk (NVO) , Bristol-Myer Squibb (BMY) and Pfizer (PFE) all advanced 5% to 7% on Wednesday. I have recommended all of names in recent months as good covered-call trade opportunities. I maintain this stance as these names have more than reasonable price-to-earnings and solid dividend yields. The news behind their advance on Wednesday was that Pfizer has reached a drug pricing deal with the administration that is hoped to serve as a standard for the industry. The administration also has backed off its threat to impose 100% tariffs on imported pharmaceuticals to give other major pharma names time to cut their own deals with the government. The sector advanced even as the Food and Drug Administration will not be accepting new marketing applications for drugs until the government shutdown ends.
An analyst with BMO Capital Markets also mentioned on CNBC this could be the trigger for a larger rally, and he also noted that valuations for the sector were approaching a 15-year low. There's more: The sector has traditionally been viewed as a defensive one that tends to outperform when the economy slows notably or goes into a recession. And given Wednesday’s September ADP report showed a loss of 32,000 jobs for the month, that scenario can’t be ignored. Especially after a series of dismal BLS monthly jobs reports over the summer. Investors will not get September BLS jobs report until the government shutdown ends it should be noted.
The tea leaves seem to be lining up for what has been an underperforming part of the market until recently. The SPDR S&P Biotech ETF (XBI) is up just over 10% over the past month but is still lagging the S&P 500 and Nasdaq for the year. Let's hope the makes up more of that gap in the fourth quarter.
At the time of publication, Jensen was long BMY, NTLA, NVO, PFE and XBI.
