Artificial intelligence (AI), the driving force behind the recent surge in tech stocks, might finally breathe new life into the lagging biotech sector. 

This is according to fund manager Hans Peter Portner, who oversees Banque Pictet & Cie’s largest fund, Global Megatrend Selection. Portner sees AI not just enhancing the biotech sector but catalyzing a genuine innovation boom. 

This surge should be powered by AI’s deep integration into crucial biotech research and development (R&D) processes. Confidence is so strong that Portner expects Pictet’s biotech-focused fund to double in size within the next three years.

 

The Global Megatrend Selection fund boasts significant assets under management ($13.4 billion) and has delivered impressive recent performance, outperforming roughly 75% of its peers within the past year — even while trailing the S&P 500’s growth.

Companies Already in Play

The transformative impact of AI in the biotech space is undeniable. Leading companies such as Gilead Sciences Inc. (GILD), Genentech Inc. (a subsidiary of Roche Holding AG (RHHBY)), and Agilent Technologies Inc. (A) are already harnessing the power of AI in several ways:

Accelerated R&D

AI algorithms can rapidly analyze vast datasets to identify potential drug targets, streamline the design of clinical trials, and optimize drug formulations. This speeds up the lengthy and often costly R&D process.

Enhanced Data Analysis

Biotech research generates enormous volumes of complex biological data. AI tools excel at parsing this information, uncovering hidden patterns and insights that could lead to new treatments and diagnostic tools. 

Precision Drug Discovery

AI can simulate drug-target interactions, predict drug efficacy, and even design new drug molecules from scratch. This augments traditional discovery methods and helps researchers pinpoint promising drug candidates more effectively.

A Sector Ripe for Growth

For some time, biotech stocks have trailed behind those in the booming tech sector. This underperformance is starkly illustrated by the Russell 2000 Index Biotechnology Subsector’s lagging performance against the Nasdaq 100 Index, both in the past year and over the last five years. However, several factors indicate that the biotech sector is now positioned for a significant comeback.

Big Pharma’s Search for Innovation

The recent flurry of acquisitions in the biotech space suggests that large pharmaceutical companies are actively seeking to bolster their drug development pipelines. These acquisitions target innovative biotech firms, injecting fresh capital and resources into the sector.

A Resurgent Russell Index

The substantial uptick in the Russell Index (more than 50% since its October low) demonstrates renewed investor interest and optimism regarding biotech’s potential. 

Underlying Strengths

Despite recent underperformance, the biotech sector possesses inherent strengths. Its focus on groundbreaking medical research, addressing unmet healthcare needs, and continuous technological advancements in areas like gene editing and personalized medicine, all lay the foundation for significant future growth.

The Strategy | Biotech and Beyond

Experts are championing a bold investment strategy, focused on uncovering potential in small and midcap biotech companies. Portner highlights Springworks Therapeutics Inc. (SWTX), Xenon Pharmaceuticals Inc. (XENE), and Cytokinetics Inc. (CYTK) as stocks demonstrating significant promise. 

 

Of course, the approach isn’t limited to biotech: there’s a well-rounded portfolio to be built with established tech leaders like Nvidia Corp. (NVDA) and Netflix Inc. (NFLX). Additionally, this investment philosophy extends internationally, with a stake in European powerhouse Novo Nordisk A/S (NVO) and exposure to the luxury sector.