A Breakthrough Cancer Vaccine Fueled a Biotech Rally. Can It Last?

SPEAKER_1 (0:00)

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Telis Demos (0:17)

Hi, Miriam.

Miriam Gottfried (0:18)

Hi, Telis.

Telis Demos (0:19)

So I was out for a couple of weeks, and of course, what was I doing on the beach? I was catching up to Take On the Week. I was listening to the episode that you did.

Miriam Gottfried (0:28)

You're such a devoted co-host. I really have to say.

Telis Demos (0:30)

You know, not just a co-host, but also a listener, as I like to say.

But in all seriousness, the episode about Small Caps was really interesting, and one thing that jumped out to me was that the guest talked about, Dan Rasmussen talked about how one driver of Small Caps outperformance has been biotech. And that caught me because my kind of understanding was that biotech had been underperforming for a long time. So it turns out that's not the case recently.

Miriam Gottfried (0:55)

It is definitely not the case. In fact, as of this recording, XBI, which is the big biotech ETF, is up about 70% over the past year versus about 20% for the S&P 500 So that's a really significant outperformance.

Telis Demos (1:09)

Well, and I guess it didn't surprise me ultimately, right? Because when we talk about biotech, we're talking about companies developing new drugs, right? The kind of tech companies of the healthcare world.

Miriam Gottfried (1:20)

That's right.

Telis Demos (1:21)

And what have been in the headlines recently? I mean, we have what? Basically a cancer vaccine now in development, right? We have incredible breakthroughs all the time. So I guess it makes sense that the stocks would reflect that, right?

Miriam Gottfried (1:32)

I think so. And I wanted to dig into that more. And we thought, oh, we could bring in some Wall Street analysts. And then we thought, you know what? We have an in-house expert right here at the Wall Street Journal.

And that is Heard on the Street columnist David Wainer, who writes incredible commentary about investing in health care, including biotech and pharma. And he is joining us here today. Welcome, David.

David Wainer (1:55)

Thank you. I'm so happy to be here.

Telis Demos (1:57)

Obviously, there's been a lot of really exciting news in the biotech world. But I'm sure it's not so simple as like drug news, stocks go up. So why don't you catch us up? What has been happening to drive the rally in biotech? And we're measuring it by just for listeners' ease. The Spyder S&P Biotech ETF, XBI.

That's the one that's really just been gangbusters over the past year. What's driving that?

David Wainer (2:24)

So to understand what's going on in biotech and pharma, you have to go back to when Trump was elected for the second time, right? Because Trump ran on this platform that he was going to reign in drug prices. And more importantly, he brought in RFK Jr. as his health secretary, right?

So there was absolute panic in the biopharma world when these folks came on.

Miriam Gottfried (2:47)

And stocks actually fell as a reaction to them?

David Wainer (2:49)

Stocks fell, yeah.

Telis Demos (2:50)

And that's just because the MAHA agenda was like very anti-vaccine and everything.

David Wainer (2:54)

Yeah, they were anti-vaccine. There was concern that there was like this sort of big anti-big pharma, you know, wing within the Trump camp. And then on top of it all, Trump was actually talking about drug price regulation. He has this thing called most favored nation that he wanted to basically say, you guys can no longer charge more than what you charge European countries or Japan or something like that. So the sentiment was very negative.

And then somewhere in, you know, as we've seen with the taco trade, you know, in many parts of our economy and market.

Miriam Gottfried (3:23)

That's Trump always chickens out for those who have not been following.

David Wainer (3:27)

Right. Eventually, in late 2025, Trump signs these agreements starting with Albert Borla, the CEO of Pfizer, basically declaring the whole thing over. Tariffs are off, drug pricing regulation is agreed upon, and there's debate about how impactful that is.

Miriam Gottfried (3:43)

So he went with each, through each of the pharma CEOs and signed a pact with them?

David Wainer (3:48)

Right. Exactly. He started with Pfizer CEO, and then there were these group signings at the White House every other day. At some point, everybody stopped paying attention. That just lifted pharma stocks, and gradually started to lift biotech stocks as well, and we can get into that.