The first half of 2025 was anything but smooth for biotech investors. Market sentiment swung from tactical optimism to institutional disengagement, as headlines were dominated by FDA turmoil, political noise, and mixed price action.
XBI posted a weak start with -8.6% in March alone, driven by the resignation of Peter Marks from the FDA’s biologics division—widely seen as a protest against political interference. Momentum also flagged in May when anti-accelerated approval critic Vinay Prasad was appointed to lead CBER, raising concerns for cell and gene therapy developers.
Despite these disruptions, biotech showed flickers of resilience. A modest rebound in April and a short-covering rally in June reminded investors that sentiment can change quickly, especially with catalysts like medical conferences, M&A activity, and seasonally strong Q2/Q3 earnings for large-cap and profitable names.
With most policy headwinds now “known knowns,” the setup for 2H 2025 looks incrementally more constructive. Retail sentiment is re-engaging, the FDA remains broadly responsive according to management commentary, and the M&A drumbeat continues, with Merck’s $10B Verona acquisition reinforcing the dealmaking narrative.
Still, institutional support remains elusive, and the XBI sits below its 200-day moving average. Execution - not just hope or headlines - will determine whether biotech breaks out of its holding pattern.
Risks To Watch
FDA leadership uncertainty, RFK Jr.'s rhetoric, thin summer liquidity, and volatile ETF flows remain risks. Retail sentiment is fickle and institutions are still largely absent. M&A chatter must translate into action. If macro or regulatory shocks return, biotech could retest lows despite improving visibility and technical tailwinds.
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