The biotechnology industry is beginning to show renewed strength. After a prolonged period of lagging performance, especially among smaller and mid-sized firms, a combination of scientific advances, evolving market conditions, and improving investor sentiment is laying the groundwork for a potential turnaround.
For those with a long-term perspective, this moment presents a chance to engage with a sector known for innovation and high growth, now available at attractive valuations.
Scientific Progress Outpaces Market Performance
Between early 2021 and mid-2025, small-cap biotech stocks, as tracked by the Russell 2000 Biotech Index, fell by 47.1 per cent in British pounds. In contrast, the broader market, represented by the S&P 500, rose by 67.5 per cent.
This disconnect between market pricing and scientific progress is becoming increasingly apparent. The pace of innovation appears strong, with new therapies and technologies continuing to emerge. Notable recent developments include clinical trial results for ivonescimab, a novel bispecific antibody for lung cancer, which demonstrated a 49 per cent reduction in disease progression compared to Keytruda, the current standard of care. Gilead Sciences’ lenacapavir, a long-acting drug for HIV prevention, showed near-complete protection against infection in high-risk groups and has received FDA approval. Akero Therapeutics’ efruxifermin, a fibroblast growth factor analogue, produced histological improvements in liver disease, reversing cirrhosis to earlier stages, a result not previously seen in clinical trials. These examples underscore the sector’s ability to deliver meaningful clinical impact.
Regulatory Support Fuels Innovation
The sector’s progress is being reinforced by strong regulatory backing. In 2024, the FDA approved 59 new drugs, many of which employed cutting-edge technologies such as oligonucleotide silencing and multi-specific antibodies to tackle serious diseases.
Accelerated approval pathways have become a vital tool for biotech firms, especially smaller players that depend on timely regulatory decisions to attract investment and form strategic partnerships. These pathways also offer hope to patients awaiting effective treatments.
The FDA’s willingness to embrace novel therapeutic approaches including gene therapies, RNA-based treatments, and cell therapies has helped validate emerging platforms and draw global capital into the sector. The FDA’s collaboration with international regulators is also smoothing the path for cross-border clinical development, further advancing the global reach of biotech innovation.
Strategic Investment and M&A Activity Resumes
Major pharmaceutical companies are facing the expiration of patents on key products, prompting a renewed focus on acquisitions. Innovative biotech firms are increasingly seen as valuable targets for larger players seeking to strengthen their pipelines and maintain market leadership.
Recent deals reflect this trend. Johnson & Johnson acquired Intra-Cellular Therapies, a company specialising in psychiatric treatments, for $14.6 billion. Merck KGaA purchased SpringWorks Therapeutics for $3.9 billion, gaining access to OGSIVEO, the first FDA-approved treatment for desmoid tumours, a rare and recurring connective tissue condition.
These transactions signal a supportive environment for early-stage biotech firms, whether they aim to scale independently or exit through strategic partnerships. Although M&A activity slowed in 2024, it has accelerated in the first half of 2025, driven by the need for innovation and pipeline renewal.
Opportunity in Volatility
Biotech’s inherent volatility is often viewed as a risk, but it also presents strategic opportunities. The sector’s rapid pace of change driven by scientific breakthroughs, evolving clinical data, and regulatory shifts creates fertile ground for investors who can navigate its cycles.
For those willing to engage with the sector’s dynamics, short-term market dislocations can offer entry points into undervalued assets. Tactical positioning around key events such as trial results, regulatory decisions, and partnership announcements can yield long-term rewards.
Current valuations are lower than those seen during the dot-com crash and the 2008 financial crisis. With innovation accelerating and global interest rising, the sector appears poised for renewal. For investors who believe in the transformative power of science, this is a moment to consider biotech not just through individual funds, but across the full spectrum of international innovation
By Geoff Hsu, Portfolio Manager, The Biotech Growth Trust
