To The Moon

On March 31, the US and Iran signaled a potential de-escalation of conflict, leading to a clear improvement in market risk appetite. US equities broadly rallied, with the $NASDAQ(.IXIC)$ rising 3.80% on the day. Against this backdrop, the biotech sector stood out, with $Spdr S&P Biotech Etf(XBI)$ gaining 7.53%, significantly outperforming the broader market.

Looking over a longer time frame, this performance did not emerge in a single day. As of the March 31 close, XBI has risen approximately 4.8% compared to December 31, 2025, while the Nasdaq has declined about 7.1% over the same period. Since the escalation of tensions in the Middle East on February 28, volatility in tech stocks has increased, while the biotech sector has seen more limited downside and gradually recovered through late March, showing a relatively independent trend.

The question then becomes clear: why has XBI strengthened while tech stocks remain under pressure and overall market volatility persists?

First, looking at developments on March 31. Two sizable acquisitions were announced before the market opened. $Eli Lilly(LLY)$ said it would acquire $Centessa Pharmaceuticals plc(CNTA)$ for up to $7.8 billion, and $Biogen(BIIB)$ announced a $5.6 billion acquisition of $Apellis Pharmaceuticals Inc.(APLS)$ . Both deals involved substantial premiums, with Centessa rising about 46% and Apellis surging roughly 135% in a single day.

Apellis accounts for about 1.83% of $Spdr S&P Biotech Etf(XBI)$ , placing it among the largest-weighted components. When a stock with this level of weight posts a gain of over 100% in a single session, the impact on the ETF is direct:

The sharp move in Apellis reinforces expectations around potential acquisition targets, which in turn lifts a broader group of small- and mid-cap biotech names, amplifying the overall effect on XBI.

The second factor relates to interest rate expectations. On March 30, Federal Reserve Chair Jerome Powell stated in a public speech that the Fed would assess the actual impact of rising oil prices on inflation and that there was no immediate need to adjust policy. This did not reinforce expectations of further rate hikes, and concerns about additional tightening eased. For small biotech companies, this is particularly important, as they typically rely on external financing to fund R&D. Stable rates imply that financing conditions are not becoming more restrictive.

The acceleration in M&A activity is also notable, with events concentrated in a short time span. On March 23, $Gilead Sciences(GILD)$ announced the acquisition of Ouro Medicines; on March 25, $Merck(MRK)$ announced the acquisition of $Terns Pharmaceuticals, Inc.(TERN)$ ; on March 27, $Novartis AG(NVS)$ announced the acquisition of Excellergy; and on March 31, $Eli Lilly(LLY)$ and $Biogen(BIIB)$ announced their respective deals. The spacing between transactions is only a few days, indicating a shift from sporadic to continuous deal activity.

Behind these acquisitions is the gradually emerging pressure of patent expirations in the coming years. By 2030, core drugs representing about $180 billion in sales for major US pharmaceutical companies are expected to lose patent protection, with the global figure approaching $300 billion. Patent expirations are not concentrated in a single year, but instead rise gradually starting in 2025, reach a key phase around 2028, and remain elevated thereafter:

At the company level, this pressure is already visible. $Bristol-Myers Squibb(BMY)$ is expected to face about $19 billion in revenue impacted by patent expirations between 2025 and 2030, while $Pfizer(PFE)$ faces an even larger exposure, with about $39 billion in revenue subject to generic competition by 2030. Once these core products enter competition, revenues typically decline significantly.

In this context, large pharmaceutical companies do not wait for revenues to fall before acting. Instead, they move in advance by acquiring pipelines. $Eli Lilly(LLY)$ is positioning ahead of future pressure on Trulicity, while $Merck(MRK)$ , $Gilead Sciences(GILD)$ , and $Novartis AG(NVS)$ have all made acquisitions throughout March as they prepare for potential revenue gaps in the coming years.

Under these conditions, the biotech sector, particularly $Spdr S&P Biotech Etf(XBI)$ with its focus on small- and mid-cap companies, remains well positioned and could become a key area of market attention going forward!