DNB AM predicts biotech sector revaluation after weak first half
20 AUG, 2025
By: Rune Sand-Holm fund manager at the DNB Biotechnology fund & DNB Fund HealthCare
After a first half of the year marked by pressure on small and mid-cap companies, the biotechnology sector could see a substantial improvement in the second half. This is the view of Rune Sand-Holm, fund manager of DNB Biotechnologyat DNB AM, who identifies adjusted valuations, solid fundamentals, and an emerging rebound in mergers and acquisitions (M&A) activity as key factors for a potential turnaround.
“We expect a revaluation of the sector,” says Sand-Holm, highlighting that an improving financial environment and greater political clarity in the US are boosting investor sentiment.
Large caps withstand pressure, but opportunities shift to mid caps
So far in 2025, US large-cap biotechnology companies with strong cash generation, such as Gilead and Amgen, have led sector returns. Some mid caps with successful product launches, like Ascendis, have also stood out. In contrast, small and mid-cap development-stage companies have faced significant pressure from a restrictive financial environment.
However, cases such as Merus—a European biotech listed in the US—show that the market rewards positive clinical results with notable gains. DNB AM believes the second half of the year will offer more opportunities of this kind, especially for companies with upcoming clinical or commercial catalysts.
Europe: attractive valuations and renewed investor interest
In Europe, companies like UCB and Argenx have shown weak performance since January, but the fund manager believes they are well-positioned to regain ground. Renewed interest from US investors in differentiated scientific platforms, combined with compressed valuations, could support a selective recovery in the region.
Political noise in the US dampens visibility, but positive signals emerge
A major area of uncertainty is US regulatory evolution, following the new Donald Trump administration. The appointment of Robert F. Kennedy Jr. as Health Secretary (HHS), staff reductions at regulators, and changes at the FDA have caused concern. The new White House pricing model and potential budget constraints for the National Institutes of Health (NIH) are also points of focus.
“Although many reforms have negative effects, there are some positive aspects of the new administration,” says Sand-Holm. “The new FDA director has expressed a willingness to increase regulatory flexibility and leverage AI in approval processes.”
Despite the uncertainty, key FDA functions remain operational, which is positive for future drug approvals.
Tariff risks: impact will depend on scope
Although pharmaceuticals remain tariff-free, the threat of new tariffs on components or finished products looms over major pharmaceutical companies, particularly those with plants outside the US, such as in Ireland. Some companies, including Eli Lilly, have already announced investments in new US facilities as a precaution.
Sand-Holm warns that the impact of tariffs will largely depend on their structure: if they only affect active pharmaceutical ingredients (APIs), the effect would be limited, but if extended to final products or internal transfer pricing, consequences could be far more significant.
Stock-picking and catalysts as the semester’s key drivers
The current environment favours active managers able to select companies with scientific differentiation, execution capacity, and short-term key events. While large caps have led returns so far, the fund sees more attractive opportunities in the mid-cap segment, where upcoming clinical and strategic catalysts are concentrated.
“Many stocks with solid fundamentals are currently trading at significant discounts,” notes Sand-Holm. “In this environment, an active selection approach is essential, where scientific knowledge and implementation ability will make the difference.”
Seasonality also plays a role: traditionally, the second half of the year tends to be more positive for the sector, driven by clinical results releases, regulatory decisions, and year-end flow repositioning.
