Han Dieperink: After the perfect storm
This column was originally written in Dutch. This is an English translation.
Biotech combines historically low valuations with rapidly improving fundamentals, creating an exceptional investment opportunity.
By Han Dieperink, written in a personal capacity
Valuations in biotech are at their lowest level in twenty years, just as the fundamental outlook is improving significantly. Many companies are trading at prices that barely exceed their cash position. The market seems to attach virtually no value to years of scientific research, clinical studies and advanced technologies. For those willing to look beyond the volatility, a rare opportunity is emerging. Three powerful trends are now converging.
1. Artificial intelligence is transforming drug development
The biggest change is taking place in the laboratories themselves. Artificial intelligence is revolutionising the way new drugs are developed. AI accelerates the discovery process of molecules, predicts efficacy and side effects with increasing accuracy, and identifies suitable patients for studies. This significantly reduces both development time and costs. Companies get more promising drug candidates per euro invested and can operate faster. Genetic medicines benefit most from this. RNA therapies, gene therapies and cell therapies are complex and data-intensive, precisely the areas in which AI excels. In addition, AI reduces the binary risk that has traditionally characterised biotech. Better predictions early in the process enable companies to concentrate capital on the most promising programmes. However, the market has hardly priced in this advantage yet.
2. The acquisition carousel is running at full speed
Large pharmaceutical companies have no choice but to make acquisitions. Their patents are expiring en masse, cheap generic versions are flooding the market and their portfolios need to be replenished. The eighteen largest players have a combined acquisition capacity of $1.2 trillion. If we extrapolate the merger and acquisition activity of early 2025, we are heading for the strongest acquisition year since 2019. Bristol Myers Squibb recently acquired Orbital for £1.5 billion, Novo Nordisk bought Atero for £4.7 billion, Pfizer paid £4.9 billion for Metsera, and Utrecht-based Genmab paid £8 billion for neighbour Merus. It is striking that even larger mega deals have not yet materialised, leaving room for substantial transactions. Combined with low valuations, buyers can pay substantial premiums without becoming financially irresponsible. For shareholders of acquired companies, this usually results in significant share price increases.
3. The sector is healthier than ever
The notorious clean-up is largely behind us. Companies without convincing results or realistic prospects have disappeared from the market. No less than 82% of public American biotech value is now held by companies with strong data sets, compared to only 47% in 2022. This is not a marginal shift but a fundamental improvement in quality. In addition, financing conditions are improving. Central banks are lowering interest rates, which is favourable for capital-intensive sectors. The market for initial public offerings is reviving and creating new financing opportunities.
The convergence of these three trends is exceptional. Historically low valuations, transformative technology and structural acquisition dynamics are reinforcing each other. For investors with patience and a willingness to value fundamental value over short-term sentiment, a rare opportunity is presenting itself. The genetics segment in particular deserves attention as the primary beneficiary of AI developments. The upward spiral has only just begun.