The founder of RTW Investments believes biopharma’s five-year bear market is finally coming to an end.
In a client letter detailing August results, dated September 2 and obtained by Institutional Investor, the biotech hedge fund firm’s founder, Rod Wong, told clients, “We are increasingly optimistic that a biotech recovery could gain momentum. We continue to see a large number of asymmetric opportunities and are excited for a number of development-stage events and key new product launches this fall.”
Wong’s optimism is understandable.
The RTW Master Fund gained 10.6 percent in August — its second straight strong month — and the RTW Innovation Master Fund surged 11.7 percent as four positions generated two-thirds of the returns, according to the report. As a result, the funds are up 21.6 and 20 percent, respectively, year-to-date. Last year, the Master Fund climbed 10 percent despite suffering a big loss in December.
RTW currently manages just under $7 billion, mostly in the two hedge funds. It also has a venture capital–heavy listed fund in the U.K., and at the beginning of the year, it launched a new strategy that provides capital to invest in royalties.
In a phone interview, Wong explains that the sector was hurt in recent years by an increase in the number of fledgling companies going public too early following a big wave of innovation. This led to inevitable disappointments and a long consolidation phase. The sector, like many small-capitalization companies, was hurt by rising interest rates as well.
Wong is confident that sentiment and fundamentals are turning, for several reasons. Acknowledging that health care is the worst-performing sector year-to-date, he nonetheless believes certain policy risks are disappearing.
He said in his second-quarter letter that the Food and Drug Administration’s new leaders (Commissioner Marty Makary and chief medical and science officer Vinay Prasad) “have very publicly shared their vision for [the] FDA’s future.” And he asserted that the drug-specific tariff threat introduced alongside Liberation Day tariffs “translated into one of the Trump administration’s fastest wins,” noting that more than half of multinational pharmas have committed to reshoring nearly $300 billion in manufacturing.
The only unresolved policy issue is most-favored nation (MFN) drug pricing, which theoretically would require drug companies not to charge more for drugs in the U.S. than in other developed countries.
“People don’t know where it stands,” Wong admits in the interview. “That’s probably the biggest policy uncertainty. The administration is negotiating with major companies and countries. I’m optimistic there will be reasonable outcomes.”
Whatever happens, Wong believes biotech companies won’t be hurt as much as the large drug companies if MFN is implemented, as most of their sales occur in the U.S. And they should receive another boost if the Federal Reserve cuts interest rates.
Meanwhile, the sector is benefiting from a rise in consolidation as big pharma continues to scoop up promising biotechs at a faster rate than last year. The first half of 2025 saw more than $30 billion in M&A deals, compared with $45 billion in all of 2024, according to RTW’s second-quarter letter.
Wong is especially excited about late-stage companies, asserting, “The number of biotechs succeeding commercially is accelerating.” On the other hand, he pointed out in his letter, early-stage companies’ gradual consolidation “still has a ways to go.” Wong says that competition from China adds pressure, “as the supply of high-quality early-stage innovative assets has increased.”
This said, he notes that in just the past year, thanks to successful launches, four companies whose stocks he owns “are all knocking” on the door of household names: Verona Pharma, Madrigal Pharmaceuticals, Ascendis Pharma, and BridgeBio Pharma. “We have never seen more opportunities to own high–revenue growth biotech businesses,” he says.
Where does Wong see the best opportunities these days? He emphasizes metabolic-obesity and fatty liver disease. He also sees a resurgence in neuropsychology innovation and the emergence of psychedelics.
Still, Wong stresses that stock selection remains critical, adding that if the recovery comes later than expected, RTW can still do very well. He says, “It’s a market suited to people who do super deep research.”
