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The bear market induced by the Federal Reserve’s monetary tightening officially ended in 2023, but it seems no one remembered to tell the biotech sector.
Biotech stocks lagged the broader market in 2023 and 2024, and the SDPR S&P Biotech ETF (NYSE: XBI) is trading at the same level as in 2017. While biotech stocks soared during the COVID-19 pandemic, investors now view the sector skeptically.
Can battered biotech stocks rebound in 2025? While the broader sector may look scary, some companies are making progress on new drugs, expanding their pipelines, and implementing innovative new therapies.
Biotech is always an intriguing sector because of its potential for outsized gains, but rampant volatility forces some investors to steer clear. However, some tailwinds are beginning to materialize that point to 2025 being a rebound year for biotechs. Some promising factors include:
While the expected uptick in mergers and acquisitions (M&A) activity under the Trump administration has yet to materialize, biotech is showing signs of life and could rally further if M&A does pick up, allowing companies to deploy cash in productive ventures.
Let's look at three biotech stocks making positive headlines this year that could be leaders during the sector’s next rally.
Biotech investing isn’t for the faint of heart. The sector is highly volatile, and if a company reports a disappointing trial, its stock could be cut in half in a day. Remember that biotech stocks involve substantial risks, and you should protect your portfolio appropriately.
Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) has been a pioneer in developing drugs for cystic fibrosis, a rare disorder with devastating effects and very few treatments. Vertex’s family of cystic fibrosis drugs includes Kalydeco, the first FDA-approved medication to treat the underlying genetic mutations causing the disease, and Trikafta, a triple-combination drug approved for 90% of CF patients. The company also has gene therapy partnerships with CRISPR Therapeutics and Moderna.
Vertex recently made headlines in an entirely different area of the industry: pain management. In January, the FDA approved Journavx, a novel non-opioid pain medication that can be taken orally. Journavx is the first pain reliever of its kind to gain FDA approval, giving Vertex a leg up over competitors and another powerful asset in its pipeline.
Despite these successes, Vertex’s stock has struggled lately, dropping 15% over the last six months. A recent earnings miss added to the decline, but there’s reason to believe the selloff is overdone. Despite a pair of downgrades from Wolfe Research and Leerink Partners, VRTX shares are still a consensus Moderate Buy based on 29 different reports, with an average price target of $515. It ranks in the 85th percentile in the sector based on MarketRank’s evaluation of over 900 healthcare stocks.
Developer of the blockbuster drug Eyelea, Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has a strong and diverse pipeline that enabled it to post more than $14 billion in sales last year.
Regeneron has been expanding its portfolio into new markets recently, like Dupixent for asthma and Kevzara for rheumatoid arthritis, both of which were approved by the FDA in 2017. Regeneron’s sales dipped to $12.2 billion in 2022, but they posted $13.1 billion and $14.2 billion in revenue in 2023 and 2024, respectively.
Despite the robust pipeline and sales rebound, REGN shares have cratered over the last year. The stock is down more than 45% over the previous year, including a 20% decline in the last three months. However, analysts are still bullish on the stock, giving REGN a consensus Moderate Buy rating, with 21 out of 26 analysts listing the stock as a Buy. The average price target of $892 indicates potential upside of over 65% from current levels. The stock also trades at just 13.8x earnings with minimal debt and net margins over 30%.
Akero Therapeutics Inc. (NASDAQ: AKRO) has a $3 billion market cap, making it the smallest company on our list by far. But smaller companies often have the most potential, and Akero’s pipeline is anchored by efruxifermin, a treatment for a liver disease called metabolic dysfunction-associated steatohepatitis (MASH), currently in Phase 3 clinical trials. Efruxifermin (EFX) seeks to use the FGF21 hormone that regulates blood sugar and metabolism to attack multiple factors of MASH.
AKRO shares doubled in January when Phase 2 trials of EFX showed an improvement in MASH patients over placebo (39% with treatment vs. 15% with placebo). The stock touched an all-time high of over $57 in early February before pulling back under $40 in April. This could be a buying opportunity as analysts are highly bullish on the stock; all nine firms covering Akero give the company a Buy rating, and the consensus price target is $76, indicating potential upside of over 90%.
The biotech sector always feels the pull from several different gravitational forces: economic data, investor sentiment, regulatory agencies, and technological progress. These factors (or a combination) could all work to pull the sector higher or lower this year.
For example, if companies continue to spend on R&D and merger activity picks up in the latter half of the year, new money can be deployed into promising drug prospects that may have otherwise stalled out. Additionally, positive clinical trials and accelerated FDA approvals could bring new drugs to market quicker.
Bearish scenarios also must be considered, especially in a volatile sector like biotech. Drug trials fail frequently, and poor clinical trial results can severely hinder companies that lack diverse pipelines. Additionally, political pressure on drug pricing reforms could take a bite out of biotech profits and limit further research. And if economic data continues to decline, companies may seek to get skinny and limit future spending and projects. All of these factors must be considered when comparing biotech stocks.
Investing is always a risk/reward tradeoff, but the biotech sector takes that aspect to the extreme.
Biotech winners often win big, with their stocks doubling or tripling if a drug successfully treats its patients. But bad trial results can sink the stock just as hard, or even put the company into a struggle for survival. It's a balance between caution and optimism; biotech companies are trying to create life-changing medicines, and the industry is unforgiving toward failure.
When investing in biotech, diversification is more key than ever. Consider investing in companies with diverse drug pipelines and multiple research areas so that a bad trial doesn’t deliver a fatal portfolio blow. ETFs like XBI also allow investors to buy numerous biotech companies in a single asset. Don’t let hype over a hot new drug or treatment dictate your thinking. Always research these firms' pipeline, management team, and spending plans and make the best decisions for your timeline and risk tolerance.
The biotech sector is fast-paced and volatile, so don’t let news fall through the cracks. Sign up for MarketBeat All Access to stay updated on all the latest trial results, earnings reports, and hottest trends. Click here to learn more.
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Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.
They believe these five stocks are the five best companies for investors to buy now...
The article "Best Biotech Stocks to Buy in 2025" first appeared on MarketBeat.
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