As debate intensifies over when the Federal Reserve will start cutting interest rates, biotech industry analysts say there’s a growing argument for stocks in the sector. The central bank has kept interest rates unchanged since July last year as it patiently waits for further signs that inflation will slow. However, consumer price data for March released on Wednesday dampened hopes that policy would be eased soon. According to CME Group’s FedWatch tool, a measure of 30-day federal funds futures prices, market expectations are now pegged to September rather than June or July. Morgan Stanley analysts said last week that biotech stocks outperform in the months leading up to the first rate cut. In contrast, the group actually tends to underperform in the early stages after a rate cut, the Wall Street bank said. In fact, the Nasdaq Biotechnology Index is up about 14% from its October low. Morgan Stanley also believes the funding environment, mergers and acquisitions, and future innovation prospects further strengthen the case for biotech stocks. Nasdaq Biotechnology Index .NBI 6 million mountain over the past six months “Assuming interest rates trend downward, new innovations materialize, and M&A continues, we could see a new cycle of sustained industry outperformance. “There is a possibility that this will occur,” the analysts wrote. M&A Cases His brisk pace of M&A towards the end of 2023 continued in the first quarter. Needham tracked his 13 biotech deals in his most recent three-month period. Analyst Joseph Stringer said the pace of deal closings is well above the quarterly average of 8.2 deals since 2018. Stringer said buyers have favored companies developing late-stage treatments, but recent deals have also included biotech companies with early-stage treatments. This new trend suggests that risk appetite may be on the rise. “We believe M&A activity will be above average for the remainder of 2024, with deal sizes in the $1 billion to $3 billion range, skewed towards mid-term target companies, particularly those focused on oncology, immunology and rare diseases. Stringer said. He said. He named Fathom Pharmaceuticals, Vaxite and Rhythm Pharmaceuticals as companies he covers that are most likely to be acquired. PHAT 1Y Mountain PHATOM HIS PHARMACEUTICALS stock in the past year. As of Tuesday’s close, Fathom stock had risen more than 31% since the beginning of the year, but analysts surveyed by LSEG expected the stock could rise nearly 89% based on Wall Street’s average price target. ing. The New Jersey-based company focuses on gastrointestinal treatments and recently received approval from the Food and Drug Administration for Vokenza for erosive esophagitis and associated heartburn. This is Phathom’s first product, which it has begun selling directly to consumers through commercials and other advertising. Needham said Fathom could expand the drug’s label to include non-erosive gastroesophageal reflux disease (GERD). Shares of Vaxyte, which is working on developing a pneumococcal vaccine, are up 2% since January as of Tuesday’s close. Analysts expect the stock to rise 60% on average, according to LSEG. RYTM 1Y Mountain Rhythm share from the past year. But Rhythm stock is down more than 6% since the beginning of the year. According to LSEG, all nine analysts covering the stock rate it a “strong buy” or “buy,” with an average price target of about 35% upside. The company is working on Imcivree, a treatment for hypothalamic obesity caused by damage to the hypothalamus. There is currently no cure for this disease. Morgan Stanley expects oncology and immunology to be areas of focus for acquiring companies, while central nervous system and neuroscience will gain more attention in the coming months. “For our near-term outlook in the U.S. biopharmaceutical space, [Merck ] Continued need for combination of needs to offset Keytruda [loss of exclusivity] Morgan Stanley sees companies across the sector continuing to focus on bolt-ons (less than $5 billion), despite recent deals from AbbVie, Bristol-Myers Squibb and Pfizer. Morgan Stanley likes to own biotech stocks with strong drug platforms, even if the key triggers of clinical trial data and FDA approval are still far away. “Morgan Stanley ranks it as one of the stocks it rates as Overweight in this category. Other stocks that Morgan Stanley likes include genome-editing giant Intellia Therapeutics and rare disease genetics. Examples include Rocket Pharmaceuticals, which focuses on therapeutics.” “Past performance data shows that…” We believe that this makes sense, as these cash flows are more sensitive to changes in the discount rate. is thinking. ” wrote an investment bank analyst. —CNBC’s Michael Bloom contributed to this report.
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