Biotech Outlook 2024: Analysts Believe the Biotech Sector is Poised for Recovery Next Year

Following a turbulent period, there has been a notable change in the trajectory of biotech stocks. After experiencing significant downturns in 2021 and 2022, the $SPDR S&P Biotech ETF(XBI.US)$ has seen an increase of 5.5% in the current year. However, it continues to trail considerably behind the $S&P 500 Index(.SPX.US)$, which has achieved a 24% gain. However, analysts indicate that the previously cool sentiment of investors towards the biotech sector is beginning to warm up, as signs of a change in attitude emerge.

The U.S. government's initiative to negotiate drug prices poses a threat to the future earnings of big pharmaceutical companies, urging them to seek new revenue streams as patents on best-selling medications approach expiration. This urgency is expected to rekindle activity in mergers and acquisitions. Despite a slow year with only 16 deals of $1 billion or more in the first nine months of 2023, as reported by Bloomberg Intelligence, recent successful large-scale acquisitions by $Pfizer(PFE.US)$ and $Amgen(AMGN.US)$, which faced fewer regulatory obstacles than anticipated, have raised hopes for a market rebound, according to Lis Agosto, a senior healthcare analyst at Global X, an ETF firm.

Analysts predict a prosperous 2024 for select biotech companies specializing in oncology, immunology, and metabolism. Leerink Partners endorses $Merus(MRUS.US)$ for their head and neck cancer drug, petosemtamab, and both Leerink and BMO Capital Markets recommend $Disc Medicine(IRON.US)$ for bitopertin, a treatment for rare photosensitivity disorders, with key trial data forthcoming.

$Amgen(AMGN.US)$ is also seen positively for its work on obesity treatments, with a once-monthly injection and a pill in development. Despite trading at a lower valuation than industry leaders $Eli Lilly and Co(LLY.US)$ and $Novo-Nordisk A/S(NVO.US)$, Amgen is considered a rising contender in obesity and cardiovascular disease.

• $Bank of America(BAC.US)$ analysts called out $BridgeBio Pharma(BBIO.US)$ and $Rocket Pharmaceuticals(RCKT.US)$ as some of their top picks ahead of key updates. Carnegie's Afzal sees promise in $Stryker Corp(SYK.US)$ and $Abbott Laboratories(ABT.US)$ as an aging demographic buoys the use of a range of devices.

• $Goldman Sachs(GS.US)$ analysts led by Asad Haider predict life sciences tools will outperform next year while health insurers and dental stocks face a tougher backdrop.