Biotechnology sector shows signs of recovery and could enter a new growth phase

Commentary by Benedicte Bakke, Fund Manager of DNB Health Care and DNB Biotechnology at DNB Asset Management

The biotechnology sector may be on the verge of a new expansion phase. This is the view of Benedicte Bakke, fund manager at DNB Asset Management, following an especially strong quarter for small-cap companies, which recorded their best performance since late 2023. Although the sector has yet to match the broader market, its recent performance suggests the cycle may be turning.

According to DNB AM data, the Nasdaq Biotechnology Index has generated a 13.9% return in 2024 (USD), compared with 17.8% for the broader market and 4.3% for the healthcare sector.

A More Favorable Context: M&A, Valuations, and Interest Rates

In recent months, many of the political uncertainties affecting biopharma—including those related to tariffs and drug pricing—have subsided. This new environment has allowed attention to return to fundamentals, with fund managers like DNB AM identifying attractive valuations that could signal a sector reappraisal.

Corporate activity, including mergers and acquisitions, is also on the rise, while expectations of interest rate cuts by the Federal Reserve further support the outlook. As Bakke notes, “The biotechnology sector has historically performed better in declining interest rate environments”, as lower rates facilitate access to capital and encourage investment activity.

This context is particularly beneficial for small- and mid-cap companies, which are more dependent on financing markets. While the European Central Bank nears the end of its rate-cut cycle, U.S. monetary policy remains the primary catalyst for this segment.

UniQure Surges Over 250% Following Clinical Breakthrough

In Europe, one of the most notable developments has been the dramatic rise of Dutch biotech UniQure, whose shares climbed more than 250% after presenting promising clinical results for its gene therapy targeting Huntington’s disease, a neurodegenerative disorder with no approved treatment. The company plans to submit an FDA approval request in early 2026.

However, Bakke warns that the sector remains exposed to volatility: companies with strong breakthroughs are rewarded, but significant corrections can occur following any disappointing news.

Key Events and Catalysts for Year-End

Looking ahead to the final quarter of the year, an increase in clinical news, corporate transactions, and investor events is expected, which could act as additional catalysts. DNB AM maintains a constructive view of the sector, underpinned by solid fundamentals and attractive valuations.

“We remain optimistic about biotechnology’s prospects heading into 2026”, Bakke concludes.