The Genetic Revolution and Biotech ETFs
While U.S. mega-cap technology stocks have continued to lead the market, biotechnology and healthcare indices have lagged behind major benchmarks such as the Nasdaq. Once regarded as growth stocks alongside technology, biotech equities have delivered disappointing performance. Excluding big pharmaceutical companies—so-called Big Pharma—such as Eli Lilly and Novo Nordisk, which have attracted attention for their obesity treatments, biotech indices remain below their pandemic-era peaks.
According to a report by Barbarian Research, based on data from healthcare analytics firm IQVIA, U.S. pharmaceutical companies generated massive revenues during the pandemic years of 2020 and 2021. However, the ratio of research and development (R&D) spending to revenue actually declined—from 20.4% in 2020 to 19.3% in 2021 and 18.8% in 2022. That trend reversed sharply in 2023, when the R&D ratio rose to 23.4%, with total R&D investment reaching a record USD 161 billion (approximately KRW 220 trillion).
Mergers, acquisitions, and technology licensing deals also highlight shifting dynamics within the sector. In 2023, Pfizer acquired Seagen in a USD 43 billion transaction, marking a surge in activity within the antibody-drug conjugate (ADC) space. Pfizer, which recently announced its decision to exit obesity drug development, is reportedly refocusing on ADCs. This class of targeted cancer therapies combines antibodies—capable of precisely locating cancer cells—with highly potent cytotoxic drugs, enhancing therapeutic efficacy while limiting damage to healthy tissue.
Another notable trend is the declining share of deals conducted between large pharmaceutical companies. The proportion of Big Pharma–to–Big Pharma transactions fell from 13.6% in 2019 to 10.2% in 2023, suggesting increased M&A and licensing activity involving small- and mid-sized biotech firms. At the same time, investment in AI-driven biotechnology has accelerated rapidly since the emergence of GPT models. In 2023, deal value related to AI biotech reached USD 12.8 billion, nearly 2.7 times the average annual level of the previous three years. Research into cell and gene therapy (CGT)—a field that gained momentum during the COVID-19 pandemic—has also intensified. These therapies involve extracting cells, editing their genetic material, and reinfusing them into patients, representing one of the most advanced frontiers in biotechnology.
In summary, while healthcare and biotech stocks—excluding obesity drug leaders—have underperformed, investment activity has been rebounding since last year. Key growth opportunities are emerging in ADCs, CGT, AI-driven drug discovery, and small- to mid-cap biotech firms. This context helps explain why Nvidia CEO Jensen Huang, now at the helm of the world’s leading stock, skipped the Consumer Electronics Show (CES) earlier this year to attend the JPMorgan Healthcare Conference instead.
An ETF that concentrates on these themes is ARK Investment Management’s ARK Genomic Revolution ETF (ARKG). Its major holdings include gene-editing company CRISPR Therapeutics (7.42%), synthetic DNA manufacturer Twist Bioscience (5.99%), and AI-driven biotech firm Recursion Pharmaceuticals (5.18%), which has attracted investment from Nvidia. ARKG surged immediately after the pandemic but has since given back all of those gains.
After more than a year of U.S. market leadership dominated by mega-cap tech stocks following the advent of GPT, discussions about the next market-leading sector are gaining momentum. Healthcare and biotechnology are consistently mentioned among the top candidates—particularly biotech, which combines relatively depressed valuations with high expectations.
The biotech sector embodies humanity’s long-standing quest to conquer cancer and, as a data-driven industry, offers fertile ground for AI to deliver tangible breakthroughs. At the same time, biotechnology is notoriously complex, filled with unfamiliar terminology and scientific nuance. Before selecting individual stocks or investment products, investors would be well served by taking a long-term view—studying R&D trends and technological progress within the industry. Such preparation can help define both the direction and the timing of more informed and disciplined investment decisions.