MW The Fed cut rates. Biotech didn't notice.

By DAVID ALDERMAN

Biotechs are instead spending their time advancing the kind of smart science that will catch the eye of cash-rich pharmaceutical companies

One popular biotech ETF was up about 1% after the Federal Reserve announced its third interest-rate cut for the year.

The Federal Reserve cut interest rates as expected - but for the biotech sector, it was just another Wednesday.

While the general market celebrates cheaper liquidity, the real determinant of the next wave of biotech leaders is the concentration of capital. We are leaving fragmented competition for the era of oligopoly.

The top 15 biopharmaceutical companies and their brand-name drugs produce 75% of the sector's revenue and account for the majority of late-stage manufacturing capacity. They are no longer market participants. They are market makers.

If the Fed sets the weather, the biopharma oligopoly sets the climate.

It's time to view companies like Novartis and Roche as Swiss banks

The industry's top drugmakers hold more than $120 billion in cash reserves. But they are not deploying it in a free-for-all; they are deploying it with the discipline of a sovereign-wealth fund. Their horizon is not quarterly; it is generational.

The rate cut changed the price of liquidity at the margins. The State Street SPDR S&P Biotech ETF XBI was largely flat after the Fed's announcement but ended up about 0.7% on Wednesday. The Fed's move did not change the fact that biotech liquidity is controlled by a handful of companies with balance sheets that dwarf the impact of a 25-basis-point adjustment.

These companies are facing patent cliffs that could erase $230 billion in combined revenue by 2030, and that pressure, combined with their capital dominance, has created a market where valuation isn't set by the Fed. It's set by a drugmaker.

The narrative in biotech is about who has the best science. But the real currency is which companies can manufacture, regulate and distribute complex medicines at scale. The top five global pharmaceutical contract development and manufacturing organizations now control more than 70% of outsourced biologics capacity.

Earlier this fall, when Pfizer $(PFE)$ acquired Metsera and when Roche (CH:ROG) (RHHBY) moved on 89bio, they weren't just buying drugs - they were buying time. By consolidating platforms, they formed a moat that can't be replicated with venture capital.

If there's one lesson for biotechs in 2025, it's that science without infrastructure won't lead to success.

What's coming in 2026

By the second quarter of next year, expect at least three of the top 15 companies to make acquisitions that exceed $10 billion. For biotechs with quality assets, there will be bid-ask spreads as buyers target the same shortlist. The companies that hesitate will pay a premium if they wait until the fourth quarter. The clock is now a pricing variable.

As the industry gathers next month at the annual J.P. Morgan Healthcare Conference in San Francisco, expect the conversation to shift from speculative growth to industrial integration. Legacy drugmakers will target bolt-on assets that cost less than $5 billion and build on existing advantages. They are not looking for partners. They are looking for inventory.

Biotech's future isn't dependent on the Federal Reserve, after all. If investors want to understand where the next cycle is headed, they should ignore the Fed and follow the actions of legacy pharmaceutical companies that already own the board.

David Alderman is president and CEO of Molekule Consulting, which architects competitive strategy and market intelligence for pharmaceutical and biotech companies. Biopharma leadership teams rely on Alderman and Molekule to clarify choices, sharpen timing and accelerate conviction in high-stakes decision cycles.

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 10, 2025 17:06 ET (22:06 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.