Many biotech stocks struggled in 2023 despite a strong yr for U.S. drug approvals. As these latest therapies begin treating patients, some investors see higher times ahead next yr. “We have seen quite a lot of innovation,” Dan Lyons, portfolio manager on the health-care team at Janus Henderson, said, explaining that he’s bullish on 2024 because it would be a period when latest markets are being created. “That may be an excellent opportunity, assuming you invest behind the businesses which have the suitable alignment of physicians, patients and payers to construct a big market with an modern latest drug,” he said. This yr began with a Food and Drug Administration approval for Leqembi, an Alzheimer’s disease treatment, and was capped off in December by approvals that included two separate gene therapies for sickle cell disease — a primary in the sector. Among the many other innovations were treatments for cancer, some rare conditions and one other entry right into a latest class of anti-obesity medications, which have grabbed headlines all yr. “Unless you had an obesity program tucked away in your pipeline, chances are high 2023 was a troublesome yr with rising rates of interest and intense competition,” Canaccord Genuity analyst John Newman said in a research note. “We expect this environment to proceed but look ahead to the prospect of lower rates of interest in 2024.” The Federal Reserve has penciled in three rate cuts for next yr. When that happens, Canaccord Genuity said to expect a “strong rally across the biotech sector rewarding modern, but riskier assets.” Until then, investors shall be more focused on proven clinical and industrial success stories, it said. M & A is picking up Still, deal-making is already beginning to fuel excitement. Janus’ Lyons said he has been encouraged by the pickup in acquisitions within the sector, which he expects will aid its recovery. “I believe that is going to proceed or speed up into next yr, just as large-cap pharmaceutical firms have an actual hole of their pipelines that they should fill,” he said. In recent days, Bristol Myers Squibb went on a year-end shopping spree , snapping up RayzeBio, a developer of radiopharmaceutical drugs for cancer treatment, for $4.1 billion on Tuesday and Karuna Therapeutics , a neuroscience drug developer, for $14 billion on Friday. AstraZeneca also said it will acquire Chinese biotech Gracell Biotechnologies , which focuses on CART-T cancer treatments, and Eli Lilly accomplished a young offer for Point Biopharma , one other cancer drugmaker. RYZB 5D mountain RayzeBio shares doubled Tuesday word of its cope with Bristol Myers Squibb. Lyons highlighted AbbVie’s recent plans to purchase Cerevel Therapeutics and ImmunoGen . AbbVie’s pair of deals also look to strengthen its neuroscience and oncology pipelines. Janus was a big investor in ImmunoGen with a greater than 6% stake, in keeping with filings with the Securities and Exchange Commission. AbbVie paid a 95% premium to ImmunoGen’s closing share price ahead of the deal’s announcement. Analysts have said the wealthy price reflects the chance for ImmunoGen’s Elahere cancer treatment , which has quickly established itself as the usual of take care of forms of ovarian cancer. Evercore ISI analyst Jonathan Miller said the year-end rush of deals is “a really healthy sign” for 2 essential therapeutic areas: radiopharma and cell therapy. In accordance with Miller, the late-stage assets like RayzeBio are fetching a premium. “Perhaps no surprise that these are most tasty to large pharma, but price noting that earlier-stage players (who might boast differentiated targets, isotopes, or other bells and whistles) have been thus far omitted in favor of programs which have a) meaningful clinical data sets, against b) well-validated targets,” Miller wrote in a research note. A case for a technical move While all those trends bode well for the group, technical aspects are also in its favor, in keeping with BTIG’s chief market technician, Jonathan Krinsky. Firstly of the week, he called out that the SPDR S & P Biotech ETF (XBI) was up greater than 30% from its recent lows, but was still down greater than 50% from its all-time high set nearly three years ago. He predicted that if the exchange-traded fund cleared a share price of $90, which it did on Wednesday, it will suggest that a latest uptrend has began. XBI 5Y mountain Spdr S & P Biotech ETF over the past five years. Historical patterns are also favorable, Krinsky said. “Depending on the last week of the yr, the Nasdaq Biotech Index may very well be down for third straight yr,” he wrote in a research note. “In its history (back to ’93), it has been down two straight years twice (’96-’97 and ’01 to ’02). ’96 and ’97 were each down lower than 0.50%, so essentially flat. In other words, the recent stretch is unprecedented and bodes well for at the very least an attempt at an honest yr in ’24.” With a gain of greater than 2% thus far this week, the biotech index is now up 4.6% for 2023. BTIG’s buy-rated names in biotech include Ambrx Biopharma , Apogee Therapeutics , Biohaven and Exelixis . ‘Oversold and low cost’ In a research note Friday, Jefferies analyst Michael Yee said “a big short squeeze” was helping biotech stocks within the fourth quarter. “Investors might need moved on from a ‘short every part’ mentality to ‘things are probably too oversold and low cost’ for 2024, especially if events play out OK,” Yee said. He favors Amgen attributable to its low valuation and potential upside if its experimental obesity drug shows positive data. Amgen shares have gained 9% in 2023. Yee expects anti-obesity medications, or incretins, to stay a “hot topic” attributable to the “huge” size of the market. Many on Wall Street predict sales of those drugs will rise to greater than $100 billion annually by the top of the last decade. “In 2024, focus will shift to reimbursement and access, and if GLP1s can treat other indications like NASH (key fibrosis data by early 2024), sleep apnea, and others,” he said. NASH, or nonalcoholic steatohepatitis, is a buildup of fat within the liver, which may result in cirrhosis, liver failure and even the necessity for a transplant. Early data for some anti-obesity medications suggested that these drugs may have the opportunity to scale back the quantity of fat within the liver. While this may very well be a positive for patients, it has hurt the worth of some firms that concentrate on liver disease. Among the many stocks affected by this was Madrigal Pharmaceuticals . Its stock is down nearly 19% yr to this point, however the shares hit a 52-week low of $119.76 in late October. The stock closed Wednesday at $236.75. “It was an example of what we consider was an overreaction in lots of these stocks that we have seen rebound over the previous few months,” Lyons of Janus said. MDGL 6M mountain Madrigal shares over the past six months. Still a clinical-stage company, Madrigal is anticipated to receive approval for resmetirom in mid-March . If all goes as planned, it would be the primary treatment targeting NASH to make it to the market. “We consider that this can open up a big latest market since the physicians are really anxious to have the opportunity to supply something to their patients that’s liver-targeted that addresses NASH,” Lyons said. Vertex Pharmaceuticals is one other stock that has appeared on multiple lists of biotech stock picks. The corporate is developing a nonopioid painkiller, and plenty of analysts see an enormous marketplace for the drug whether it is successful. VRTX YTD mountain Vertex shares yr to this point “Many individuals live in pain because they do not have good options to administer their pain. So we’re really enthusiastic about alternative options,” Lyons said. Earlier this month, Leerink Partners boosted its price goal for outperform-rated Vertex to $485, which is sort of 19% higher than Wednesday’s close. Analyst David Risinger said he expects the pain program could drive peak sales of greater than $10 billion. “Although there are outstanding questions on the Ph2 results attributable to data disclosure and renal safety figures, … we see the totality of results as highly encouraging,” he said. — CNBC’s Michael Bloom contributed to this report.