The iShares Biotechnology ETF is on the verge of breaking out of a massive five-year base, signaling a potential turnaround for the sector after a brutal bear market that began in early 2021. The ETF, which tracks the Nasdaq Biotechnology Index, slumped 33% and failed to notch fresh highs for more than four years, while the S&P 500 rose over 60% in the same period. The sell-off was driven by higher interest rates, the fading of post-COVID hype, and regulatory headwinds including a hawkish Federal Trade Commission stance on mergers and acquisitions and the Inflation Reduction Act's Medicare negotiation provisions. Now, the ETF is showing extraordinary relative strength, recently gaining nearly 1% on a day the Nasdaq dropped almost 1,000 points, and is making new highs. The bullish case is supported by five factors: AI-driven reductions in drug discovery costs and time, an expected wave of M&A as big pharma faces a tsunami of patent expirations, a coming GLP-1 supercycle led by drugs like Eli Lilly's Mounjaro, rock-bottom valuations such as Pfizer's near all-time low P/E, and the potential for diversification away from an overconcentrated tech sector.
Eli Lilly and CompanyAI-driven reductions in drug discovery costs and time benefit Eli Lilly, and its GLP-1 drug Mounjaro is cited as part of a coming supercycle.
Pfizer IncPfizer is mentioned as having a near all-time low P/E, implying undervaluation, and the sector is expected to see M&A wave.
Novartis AG