After a rough bear market, it looks like biotech is back.
With AI, the medical industry is on the cusp of revolutionary breakthroughs in therapies as well as general patient care … beyond what you hear on the news about popular weight-loss drugs.
AI and machine learning can help doctors analyze medical imaging data (think X-rays and MRIs) to diagnose patients quickly and accurately.
However, AI’s most significant revolution has come in the biotechnology industry.
On average, it takes at least a decade and billions of dollars to develop a new drug. But now, AI can predict how drugs interact with the body and reduce painstaking lab work …
That’s cutting down on both costs and development time.
Not only does this help patients battling life-threatening illnesses, but it also bodes well for biotech stocks.
Because bringing life-saving drugs to market quicker means achieving profitability even faster.
Biotech Stocks: From Languishing to Thriving
From June to October 2023, the Russell 2000 Dynamic Biotechnology Subsector Index plummeted 33%.
With higher interest rates, companies starving for capital couldn’t afford to raise it.
Research and development of new therapies isn’t cheap!
Once robust biotech initial public offerings were few and far between.
Basically, investors turned their back on the sector.
But then, the Federal Reserve indicated it was done raising rates, opening the door for new funding. And the sector has been on a tear since:
Since October’s low, the index has jumped 60% to highs it hasn’t seen since April 2022.
Biotech stocks are back in vogue.
With potential rate cuts in the near future and AI innovations happening at a rapid pace … these stocks are looking more attractive to buy.
And there’s something else that will push these stocks even higher.
The Most Important Letters in Biotech
I’ve told you about AI and R&D, but I haven’t mentioned the most important letters in biotech — M&A.
In the past, large pharmaceutical companies used mergers and acquisitions (M&A) to shore up and expand their pipeline of potential drugs.
If a small biotech company’s initial tests looked promising, Big Pharma scooped it up, banking on blowout profits in the future.
AI has changed that game.
Now, larger biotech companies (think Pfizer) are buying advanced technology, analytics and platforms to make drug delivery more efficient.
It’s a big reason why biotech M&A activity in 2023 eclipsed $100 billion for the first time since 2019.
Analysts project sector M&A will keep growing in 2024 and beyond because Big Pharma companies will lose patent protection for some of their most profitable drugs.
Dedicated sales from those patented drugs — nearly $200 billion by some estimates — will be gone, and larger companies will look to acquire smaller ones to maintain those revenue streams.
Larger companies will also use M&A to capitalize on technological advances in AI, genomics and precision medicine.
This anticipated increase in M&A activity in biotech will be the “rising tide that lifts all boats” in the sector. A few big-dollar deals will push the broader biotech market higher.
Bottom line: The biotech sector is one to keep your eye on for investment potential.
Interest rates are coming down, and M&A activity is on the rise, which spells even more gains for biotech stocks.
To find solid companies to invest in, turn to Adam O’Dell’s proprietary Green Zone Power Ratings system. (You could also check out his most recent piece in Banyan Edge.)
The system analyzes thousands of stocks to help you uncover those with the highest upside potential while minimizing your risk.
It uses three technical (related to stock price and trading activity) — momentum, size and volatility — and three fundamental (financial and future prospect analysis) — value, quality and growth — factors to rate stocks from 0 to 100.
The higher the rating, the greater the expected upside return over the next 12 months.
I encourage you to take the Green Zone Power Ratings system for a test drive. It’s free to use at www.MoneyandMarkets.com.
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Until next time…
Safe trading,
Matt Clark, CMSA®
Research Analyst, Money & Markets
P.S. Adam sees a ton of potential in the biotech and genomics space. To see how you can gain access to his top recommendations in Green Zone Fortunes, his premium stock research service, click here.