In June, we attended the Jefferies Global Healthcare Conference in New York, where we met with around 50 biotech companies. Events like these don’t just offer facetime with management – they also provide a valuable read on how the industry is feeling more broadly.
Unsurprisingly, given everything that’s been thrown at the sector in recent months, the mood on the ground remains cautious and uncertainty still looms large.
The backdrop is challenging, but we are seeing a number of developments – particularly on the regulatory front – that suggest the initial headline shocks may have been an overreaction.
Regulatory resurgence
One of the most closely watched sessions at the Jefferies conference was a panel discussion with the new US Food and Drug Administration (FDA) commissioner Marty Makary.
Known for his direct approach and willingness to challenge the status quo, Makary used the platform to outline his vision for a more solution-based, reform-minded direction for the agency.
Key areas of focus included tackling the underlying causes of chronic disease, with a pledge to prioritise the ‘F’ in FDA – food. Makary also spoke of streamlining the drug approval process, including rolling submissions, efforts to reduce duplication and a move away from unnecessary or duplication of animal testing in favour of artificial intelligence (AI) based models.
He also made clear that improving transparency and accelerating pathways for rare diseases – particularly those affecting children – are high on his agenda.
The tone was measured, but the intent was clear: to make the FDA more efficient; more consistent; and more attuned to today’s healthcare priorities without compromising on scientific standards. Clearly, this is a direction of travel that should benefit innovative biotech companies.
Meanwhile, further signals of shifting policy priorities have come from Jay Bhattacharya, recently appointed director of the US National Institutes of Health (NIH). In a podcast published earlier in June, he outlined his intention to reorient the NIH’s focus towards chronic disease and preventative health, with a corresponding reduction in funding for infectious disease research and diversity, equity and inclusion (DEI) initiatives.
He also highlighted plans to initiate new studies into potential environmental and nutritional causes of conditions such as autism. While some of these proposals may prove controversial, they reflect a broader recalibration of US healthcare policy – one that could reshape funding dynamics and research priorities across the sector.
Dealflow delivers
Another encouraging development is the return of licensing deals and merger and acquisition (M&A) activity in recent weeks. We had anticipated this earlier in the year – particularly following Johnson & Johnson’s acquisition of Intra-Cellular Therapies, then our largest holding, back in January.
Increased political and macroeconomic uncertainty during the spring temporarily reduced appetite for deals but that now appears to be reversing.
Recent deals have included an asset-specific partnership between Roche and Zealand Pharmaceuticals, Merck KGaA’s acquisition of SpringWorks, Sanofi’s bid for Blueprint Medicines, an asset-specific partnership between Bristol Myers Squibb and BioNTech, and Merck’s acquisition of Verona.
We view this as a welcome development for the sector and a reminder of the background rationale for deals where the science is compelling and the commercial case is clear.
Large pharmaceutical companies continue to face pressure to replenish pipelines as key patents expire – a dynamic that should continue to support targeted acquisitions.
Selective strategy
The recent pickup in deal activity also reinforces the importance of a selective, research-led investment approach. Investing in companies that offer strategic value for an acquirer – before this is widely recognised – has long been a successful approach to generating returns, alongside a broader focus on balance and quality across the portfolio.
A combination of commercial-stage exposure and selective earlier-stage growth potential in a portfolio has proved effective through the volatile, sentiment-driven start to the year.
But we now believe the cycle may have come full circle – having been plunged into uncertainty earlier this year, the sector now appears to show signs of returning to a more stable, constructive phase.
While clouds remain, the regulatory backdrop is becoming clearer, and the return of M&A suggests fundamentals can begin to reassert themselves.
The biotechnology sector offers a blend of structural growth and shorter-term cyclicality. Underlying drivers such as favourable demographics, advances in science and rising healthcare demand continue to support the long-term opportunity.
But investor sentiment and capital flows can cause the sector to move through distinct phases.
In 2025, those dynamics have moved incredibly quickly. Optimism at the start of 2025 gave way to political uncertainty and renewed focus on drug pricing, which unsettled markets and contributed to a much more cautious tone.
Now, with the regulatory environment becoming clearer and M&A activity returning, there are signs that we may be entering a period that we describe as equilibrium: a protracted part of the cycle where fundamentals can play their usual role as the primary driver of share prices; capital can selectively return; and companies with clear strategic value can continue to deliver.
It is an environment where stock picking and a research-led approach takes a front seat, rather than macro and sentiment. As we move into the second half of the year, we remain confident that a balanced, high conviction approach will continue to offer opportunities for investors – whatever the next phase of the cycle brings.
Ailsa Craig & Marek Poszepczynski are portfolio managers at International Biotechnology Trust. The views expressed above should not be taken as investment advice.