Biotechnology Sector: Between Fed Easing and Regulatory Risks

Sector Under Pressure and Hope

August 2025 turned out to be a period of moderate growth for the biotechnology sector. After sluggish performance in July, optimism returned to the market: new U.S. inflation data came in restrained, and Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium convinced investors of a high likelihood of rate cuts as early as September. For an industry dependent on long-term financing, cheaper capital is an important source of support. Unsurprisingly, both key ETFs showed growth, with the riskier SPDR S&P Biotech (XBI) even outperforming the more conservative iShares Biotechnology IBB, signalling a rising appetite for risk among investors. While the macroeconomic environment set the overall tone, the sector continued to contend with political uncertainties related to the FDA and the U.S. Centers for Disease Control and Prevention CDC, accounting for the correction episodes throughout the month.

Harsh regulatory environment

In the midst of political uncertainty, regulatory bodies have demonstrated resilience and strictness in their decision-making processes. In August, for instance, the FDA re-evaluated and rejected Outlook Therapeutics' OTLK ONS-5010 drug, citing inadequate evidence of efficacy. This decision, following prior denials, underscores the regulator's stringent requirements for data in registration studies. Political factors have affected the market, including the resignation of CDC head Susan Monerez, a reshuffle at the FDA and the U.S. Department of Health cancelling $500 million worth of Moderna MRNA contracts for mRNA vaccine development. These events have increased uncertainty and emphasised the sector's sensitivity to political turbulence.

At the same time, heightened oversight has not dampened big players' interest in innovative platforms. On the contrary, M&A activity remains strong: Gilead Sciences GILD acquired Interius BioTherapeutics for $350 million, AbbVie ABBV invested $1.2 billion in Gilgamesh's psychedelic program, and Novo Nordisk NVO signed a $550 million agreement with Replicate Bioscience. These deals confirm that major pharma companies continue to bet on long-term technological solutions.

Scientific Results as a Trust Catalyst

Clinical trial successes remain an important source of support. Regeneron REGN reported successful Phase III trial results for cemdisiran in generalized myasthenia gravis. Eli Lilly (LLY) strengthened its leadership in obesity therapy thanks to positive results for its oral drug orforglipron. In contrast, Viking Therapeutics VKTX faced a sharp investor backlash: despite strong efficacy data for VK2735, a high level of adverse effects (38% treatment discontinuation at the maximum dose) caused its stock to plunge.

Additional positives came from new FDA approvals: Ionis (IONS) launched Dawnzera for prevention of hereditary angioedema, Novo Nordisk NVO secured a new indication for Wegovy (MASH treatment), and Jazz Pharmaceuticals (JAZZ) received approval for Modeyso in diffuse midline glioma.

September: A Season of Weakness and Hope for Select Stories

Historically, September has not been favorable for biotech: over the past ten years, the sector has shown negative performance in eight out of ten cases. The pressure is heightened this year after strong gains in Augustinvestors may actively take profits. Furthermore, the anticipated Fed rate cut is likely to have already been factored into the market, so another rally is unlikely without new catalysts.

Nevertheless, September promises to be eventful. The FDA's PDUFA calendar and publication of key clinical trial data could drive moves in select stocks. Special attention will be paid to the ACIP meeting on September 1819, where discussions on COVID-19 and RSV could directly impact MRNA, PFE, and GSK share prices.

Key Catalysts in September

A key regulatory event will be the FDA's decision on apitegromab from Scholar Rock (SRRK) for the treatment of spinal muscular atrophy (SMA), expected on September 22nd with a high probability of approval. The registration application is based on data from the SAPPHIRE study, in which the drug met its primary endpoint in the overall population analysis, with a statistically significant effect observed at the 10 mg/kg dose but not at the 20 mg/kg dose. An FDA approval would make apitegromab the company's first commercial product, intended for use as an add-on therapy for patients already receiving standard of care treatment.

The month will culminate with the publication of clinical data, which will allow for the assessment of the profiles of several experimental drugs:

• MoonLake Immunotherapeutics (MLTX) will present Phase 3 data for sonelokimab in hidradenitis suppurativa. The results on the primary endpoint (the proportion of patients achieving a HiSCR75 response) will form the basis of a registration application and provide data for comparison with already approved drugs like BIMZELX.
• aTyr Pharma (ATYR, target price: $9,5, BUY) will publish Phase 3 results for efzofitimod in pulmonary sarcoidosis. A key aspect of this data will be the evaluation of the drug's ability to reduce the steroid dose for patients, which is an important measure of clinical benefit in this disease. Company is in our coverage list, and we will be monitoring the results closely.
• Arcturus Therapeutics (ARCT) will present interim Phase 2 data for ARCT-032, an mRNA therapy for cystic fibrosis. These early results from a small patient group (n=9) will provide an initial assessment of the safety and tolerability of the company's inhalation platform.
• Dianthus Therapeutics (DNTH) will release Phase 2 data for claseprubart in generalized myasthenia gravis. In the highly competitive landscape of this condition, the drug will be evaluated on both its efficacy and its safety profile, as its mechanism of action is designed to avoid the risk of meningococcal infections associated with C5 inhibitors.

Rapport Therapeutics (RAPP) will present Phase 2 results for RAP-219 in focal onset seizures. The study will assess both efficacy in reducing seizure frequency and the tolerability profile, particularly regarding behavioral side effects, which is a key parameter for drugs with a selective mechanism of action.The current biotech landscape appears mixed. Even though scientific achievements, M&A deals and a busy regulatory calendar present growth opportunity for select players, political uncertainty and seasonal factors increase the likelihood of profit-taking. The key September catalysts require an evaluation of nuances that will shape commercial potential beyond simple binary outcomes. For companies in competitive therapeutic areas, such as Dianthus (DNTH) and Rapport (RAPP), the data will be assessed for a differentiated safety profile that could support market adoption. In the case of Scholar Rock (SRRK)'s regulatory decision, the specific details of the FDA's approved label will be more consequential for the asset's commercial scope than the approval itself. Furthermore, the readouts for platform companies like Arcturus (ARCT) and aTyr Pharma (ATYR) have broader implications, serving as key validation points for their underlying technologies and thus carrying a significant risk/reward profile.