Despite Headwinds, Biotech Sell-Off Could Offer Buying Opportunity: Analyst

Bank of America Securities writes that SMid-cap biotech, companies with small to mid-sized market capitalizations, had a rocky start to the year.

Many companies in the coverage are down 20-40% year-to-date (NBI: -2.35%).

Tariff concerns and the U.S. Food and Drug Administration (FDA) shakeup added further near-term uncertainty to an already challenging already challenging outlook.

Earlier this week, Peter Marks resigned from his role at the FDA’s Center for Biologics Evaluation and Research.

Marks was a top regulator at the FDA and played a key role in ensuring the quick approval of vaccines during the COVID-19 pandemic.

In March, the U.S. Department of Health and Human Services unveiled a sweeping restructuring plan on Thursday to cut costs, streamline operations and refocus priorities.

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The changes, aligned with President Donald Trump's executive order on government efficiency, will reduce the agency’s workforce, consolidate divisions, and emphasize efforts to combat chronic illness.

The analyst points out that public biotech companies raised only $4.7 billion, compared to $13.6 billion last year, highlighting ongoing challenges in the capital market.

“And while we see these macro headwinds as likely to continue over the course of 2025, drugs being exempt from reciprocal tariffs should offer some much-needed near-term reprieve for the sector, in our view,” BofA analyst writes.

Novavax Inc NVAX is just one example of FDA. On Wednesday, the regulators missed the deadline for deciding to grant full approval to Novavax’s Covid-19 shot.

BofA expects more details on the delay in the coming weeks. The expected $125 million milestone payment from Sanofi SA SNY will likely be pushed to the second half of 2025.

Despite small and mid-cap biotech stocks being among the worst performers this year, the sector may still present a strong opportunity. Most of these companies (80%) are pre-commercial and have minimal exposure to tariffs or FDA decisions, with only 2 out of 29 under BofA coverage awaiting FDA approval.

The bigger challenges are high interest rates and limited access to capital, but these risks are already factored into valuations. While negative headlines may continue to impact sentiment and investment flows, the recent broad sell-off could be an appealing entry point.

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