By Josh Nathan-Kazis

Something strange has been happening with biotech stocks over the past few weeks: They have been going up.

The SPDR S&P Biotech ETF, a benchmark for the sector, closed April 8 at $69.80, its worst closing price since November 2023. It was up 20% from that low by the end of the day on Friday, outperforming the S&P 500, which was up 14%. It had trounced the Health Care Select Sector SPDR ETF, which follows healthcare stocks writ large and was up 4.2%.

The woes of the small and midsize biotechs have been discussed repeatedly since the sector started to fall apart in February of 2021. It is a long list: too much capital tied up in too many low-quality companies that went public during the pandemic-era boom, high interest rates, the failure of some of the most-hyped new technologies to add up to much benefit for patients, and plenty of other problems.

The hope now is that the recent run-up, which began as the overall market surged after President Donald Trump delayed most of his promised tariffs by 90 days on April 9, is the first taste of a broader biotech recovery. The fear is that it is just a brief respite, driven by events outside the sector, from a selloff that will inevitably continue.

The past few weeks have barely made a dent in the long-term underperformance that has dogged biotech. Over the past five years, the SPDR S&P Biotech ETF, trading with the ticker XBI, is down more than 15%, while the S&P 500 is up more than 90%. As of Friday, the XBI was still down 52% from its peak on Feb. 9, 2021.

The fact that the XBI has climbed alongside other riskier, more volatile stocks since Trump paused the bulk of his proposed tariffs suggests that much of the run-up is tied to broader optimism that has spread across the market. The iShares U.S. Technology ETF was up 21% from April 8 through the end of the day on Friday.

There are some signs, though, that there could be something fundamental undergirding the recent biotech run-up.

On the one hand, investors seem to finally be doing something about the glut of dead-end biotechs with market values below their cash on hand. Third Harmonic Bio said on April 14 that it would liquidate itself and planned to return its cash to shareholders. Others have announced strategic reviews in recent weeks, including Mural Oncology, Keros Therapeutics, and Unity Biotechnology. Specialist firms like Concentra Biosciences have been buying up shares of troubled biotechs to extract their cash and turn out the lights.

That is all probably good news for the sector. Cash freed from the grip of unpromising biotechs can be redeployed toward companies with better-looking technology, helping fund those projects as they trudge toward approval.

Still, taking out the trash probably isn't enough to resurrect the sector. What biotech needs is to make some money, and these days that mostly means big pharma pulling out a checkbook and writing a number with nine zeros after it.

Last week, it was Pfizer CEO Albert Bourla who rode to the rescue, dropping some big numbers when talking about the amount his company could spend on R&D this year. "We have $10 billion to $15 billion of capital to allocate that we are very prudent in how to do it," Bourla said on a Tuesday morning investor call.

He spoke shortly after Pfizer's troubled effort to develop its own weight- loss pill finally came to an end amid safety concerns. Bourla seemed to indicate on the call that the company could be looking to buy someone else's weight-loss pill.

"We are committed to building our cardiometabolic pipeline, including obesity, by advancing internal programs... and pursuing external opportunities that could include partnerships or acquisitions," he said. "We will work on potential medicines and combination regimens that could be more accessible, better tolerated, easier to dose and more effective in supporting the right effects on body composition and muscle mass."

Viking Therapeutics, which is developing a weight-loss pill, climbed 7.7% the day Bourla spoke. Structure Therapeutics, another weight-loss biotech, was up 9.7%.

The XBI rose 2.6% from Tuesday through Friday, keeping pace with the S&P 500. But Bourla's comments gave biotech investors something to focus on. "Feel like Albert (Bourla) at least partially responsible for this week's Biotech ascent," Mizuho healthcare equity strategist Jared Holz wrote in a Sunday email to investors.

On Monday, the XBI seemed to be reverting to form. It was down 0.8% at midday.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

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

(END) Dow Jones Newswires

May 05, 2025 14:49 ET (18:49 GMT)

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