The super election year of 2024 lies behind us. In addition to another interest rate hike by the major central banks in the USA and Europe, it brought a potentially landmark election victory for Donald Trump in the US presidential election. What is in store for 2025?
In the Funds check series, the fund managers of selected funds look back on the developments of the past year and give their assessment of what to expect from the stock exchanges in 2025. (Please note: forecasts are no reliable indicator of future performance.)
(c) Photo: Stephan Huger
“With the US presidential elections won and the clear victory for the Republicans, the healthcare sector should not be negatively affected on the equity market.”
Harald Kober, Fund manager ERSTE STOCK BIOTEC
Fund & Performance
The ERSTE STOCK BIOTEC invests primarily in companies in the developed markets from the field of biotechnology. The fund's investment process is based on fundamental business analysis. The majority of companies in this area can be found in the United States. As a result, Pacific and European equities tend to play a subordinated role in the fund.
Note: Please note that an investment in securities entails risks in addition to the opportunities described. Past performance is not a reliable indicator of future performance.
The performance is calculated in accordance with the OeKB method. The management fee as well as any performance-related remuneration is already included. The issue premium which might be applicable on purchase and as well as any individual transaction specific costs or ongoing costs that reduce earnings (e.g. account- and deposit fees) have not been taken into account in this presentation.
Commentary by fund manager Harald Kober
What developments did you see in the biotechnology sector in 2024?
The biotech sector had performed positively (in the double digits in euro terms) by the end of November. With interest rate cuts in the USA and some binary research events in the biotech sector that were rather positive, the sector managed to recover significantly from its year-lows in April. In a difficult macro environment with high interest rates and a tight financing environment, the growth-driven biotechnology sector had a difficult time and thus lagged behind the broader equity market.
The Covid-19 pandemic is now playing only a minor role for most companies. Pfizer/BioNtech and Moderna have repeatedly and significantly reduced their revenues from coronavirus vaccinations and drugs, and announced cost savings, over the course of the year. 2024 also saw a sharp increase in the number of IPOs in the biotech sector. In the first eleven months, 21 biotech companies went public in the USA. Investors have increasingly focused on the larger companies that already have drugs/therapies on the market, are earning money with them, and have no financing worries. 2024 also saw a number of company takeovers; however, at 15 such transactions in the USA in the biotech sector with a total value of USD 30bn, the number fell short of 2023 (20 takeovers with a total value of USD 115bn). In 2024, there were mainly small to medium-sized transactions, whereas 2023 saw several large ones. (Please note: the companies listed here were selected as examples and do not constitute an investment recommendation.)
In 2024, the ERSTE STOCK BIOTEC was also more invested in large and mid-cap companies and less in small-cap companies.
What do you expect for the sector in 2025?
With the US presidential elections won and the clear victory for the Republicans, the healthcare sector should not be negatively affected on the equity market. The valuation of the biotechnology sector remains moderate by historical standards; companies have a better liquidity supply than they did a year ago. The cycle of interest rate hikes is now over, the US Fed has already lowered key-lending rates, and further interest rate cuts are to be expected in the USA, even if the timing and extent are still uncertain. A falling interest rate level would be a very good environment for growth shares and thus also for the biotechnology sector. (Please note: an investment in securities involves risks as well as opportunities.)
The large pharmaceutical and biotechnology companies have bulging coffers and, with the exception of the “obesity shares”, Eli-Lilly and Novo Nordisk, are trading at historically attractive price-earnings ratios. Valuations in the biotech industry remain very attractive, particularly for small and medium-sized companies. Takeover targets are increasingly likely to be companies that already have an approved product or are close to approval and have a market capitalisation of less than USD 10bn. (Please note: the companies listed here have been selected as examples and do not constitute an investment recommendation.)
What’s new in the biotechnology sector?
With positive news from Madrigal's NASH (non-alcoholic steatohepatitis) research in 2023, the company received drug approval in 2024 and got off to an unexpectedly strong start in terms of sales. Although Eli Lily and Novo Nordisk's GLP-1 drugs are likely to be used for NASH, Madrigal’s drug is particularly effective against liver cirrhosis. Next year should also see the start of sales of BridgeBio’s heart drug Attruby, which will compete with Pfizer’s drug.
The further development of Vutrisan from Alnylam, which has been given a March 2025 approval date by the FDA, is also important. This drug would be in direct competition with Pfizer’s Tafamidis and BridgeBio’s Attruby. As mentioned above, we are betting on companies with promising business models and promising drug developments. Other examples include AstraZeneca (oncology focus, strong sales and earnings growth in the coming years) or, as already mentioned, Madrigal (first approved drug for the liver disease MASH (metabolic dysfunction-associated steatohepatitis)). (Please note: the companies listed here have been selected as examples and do not constitute an investment recommendation.)
The development of the biotech sector in 2025 will be strongly influenced by the macroeconomic and political environment in the USA. If interest rates were to fall, the sector should benefit disproportionately. This would also revive investor interest and thus attract inflows into the sector. Investors are currently focusing even more on commercial biotechnology companies with sales and profits that do not require a great deal of external financing. The favourably valued small and mid-caps should benefit more from a positive sector sentiment than the large caps. (Please note: forecasts are no reliable indicator of future performance.)
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