Biotech stocks are ready to explode.they only need one thing | Wilnesh News
While debate rages over when the Federal Reserve will begin cutting interest rates, biotech industry analysts believe the argument for stocks in the sector is growing. The central bank has kept interest rates steady since July last year, patiently waiting for more signs of cooling inflation. But March consumer price index data released on Wednesday dampened hopes that policy will be eased soon. Market expectations are now focused on September rather than June or July, according to CME Group’s FedWatch tool, a measure of 30-day federal funds futures pricing. Last week, Morgan Stanley analysts noted that biotech stocks had outperformed the broader market in the months leading up to the first rate cut. The Wall Street bank said the group actually tends to underperform in comparison in the early years after interest rates are cut. In fact, the Nasdaq Biotech Index is up about 14% since its October lows. Morgan Stanley also believes that the financing environment, M&A prospects, and upcoming innovations have further strengthened the prospects for biotech stocks. .NBI 6M Mountain Nasdaq Biotechnology Index Past Six Months “Assuming interest rates trend downward, new innovation continues to emerge, and M&A continues, we see the potential for the industry to enter another cycle of sustained outperformance,” analysis the teacher wrote. The first quarter of M&A cases continued the active pace of M&A at the end of 2023. Needham tracked 13 biotech deals in the last three months. Analyst Joseph Stringer said the transaction pace was well above the quarterly average of 8.2 transactions since 2018. Stringer said buyers have always favored companies that are developing late-stage therapies, but recent deals have included biotech companies with early-stage therapies. This new trend shows that people may have a greater appetite for risk. “We believe M&A activity will continue to be above average for the remainder of 2024, with a preference for mid-term target companies, deal sizes in the $1-3B range, and a particular focus on oncology, immunology and Rare disease.” said. He lists Phathom Pharmaceuticals, Vaxcyte and Rhythm Pharmaceuticals as among the companies he’s watching as most likely to be acquired. PHAT 1Y Mountain Phathom Pharmaceuticals stock over the past year. Phathom shares had risen more than 31% since the beginning of the year as of Tuesday’s close, but analysts surveyed by LSEG predicted the stock could soar nearly 89% based on Wall Street’s average price target. The New Jersey-based company, which focuses on gastrointestinal treatments, recently received approval from the U.S. Food and Drug Administration for Voquenza to treat erosive esophagitis and related heartburn. This was Phathom’s first product, and it began marketing directly to consumers through advertising and other advertising. Needham said Phathom may be able to expand the drug’s label to non-erosive gastroesophageal reflux (GERD). As of Tuesday’s close, shares of Vaxcyte, which has been working on a pneumococcal vaccine, had risen 2% since January. Analysts predict the stock will rise 60% on average, according to LSEG. RYTM 1Y Shanyun stocks have performed well over the past year. But Rhythm shares are down more than 6% year to date. The London Stock Exchange said all nine analysts covering the stock have given it a Strong Buy or Buy rating, with an average price target equivalent to about 35% upside. The company has been studying Imcivree, a drug that treats hypothalamic obesity caused by damage to the hypothalamus. There is currently no treatment for the disease. Morgan Stanley expects oncology and immunology to be key areas for acquisitions, while central nervous system and neuroscience are expected to attract more attention in the coming months. “In the near term, within our U.S. biopharma coverage, we note the combination of (Merck’s) continued need to offset Keytruda (loss of exclusivity) and meaningful balance sheet capacity…, we see that Companies in the sector remain focused on add-on products (<$5 billion)," Morgan Stanley wrote. Analysts say that despite recent deals, AbbVie, Bristol-Myers Squibb and Pfizer remain among the most likely suitors in the medium term. The case for innovation Morgan Stanley also favors biotech stocks with strong drug platforms, even if key catalysts for clinical trial data and FDA approval are still far away. Rhythm is one of Morgan Stanley's favored Overweight stocks in this category. Other favorite stocks include Intellia Therapeutics, a leading genome editing company, and Rocket Pharmaceuticals, which focuses on gene therapies for rare diseases. "Historical performance data...suggests that cash flow weighted to outside years (i.e., those companies further away from launches and earnings) generally perform well in low/declining interest rate environments..., which we believe has This makes sense, as these cash flows are more sensitive to changes in the discount rate," analysts at the investment bank wrote. —CNBC’s Michael Bloom contributed to this report.
