Well-Timed Bearish Drug ETF Bet Pays Off on Vaccine Chief Prasad's Regulatory Shift

The pharmaceutical sector faced a seismic shift in early 2025 when Dr. Vinay Prasad took the helm of the FDA’s Center for Biologics Evaluation and Research (CBER), overseeing vaccines and biologics. Prasad’s reputation as a regulatory skeptic—questioning fast-tracked approvals and demanding rigorous clinical evidence—triggered a sharp selloff in biotech stocks and drug ETFs. For investors who bet against the sector, the timing proved prescient.

The Regulatory Riptide: Prasad’s Impact on Biotech Stocks

Dr. Prasad’s appointment in May 2025 sent shockwaves through markets. His public critiques of FDA practices, including the approval of Sarepta Therapeutics’ Elevidys gene therapy for Duchenne muscular dystrophy, signaled a stricter evidentiary standard. Analysts warned of prolonged approval timelines and higher rejection risks for therapies lacking robust data.

The SPDR S&P Biotech ETF (XBI) plummeted 6% in the days following Prasad’s confirmation, with broader declines since February—when Health Secretary Robert F. Kennedy Jr. was confirmed—pushing the ETF down nearly 9% year-to-date. Smaller gene therapy firms bore the brunt: Sarepta’s shares fell 20%, while Moderna dropped 11% amid concerns over regulatory delays for its flu vaccine candidates.

Data Points Fueling the Bearish Case

The ETF’s decline mirrors investor anxiety over Prasad’s reforms. Meanwhile, Pfizer—a stalwart in vaccine innovation—saw its stock dip 3% despite record Comirnaty (COVID-19 vaccine) sales, highlighting sector-wide uncertainty.

The Executive Order: Manufacturing Gains vs. Regulatory Risks

President Trump’s May 2025 executive order aimed to boost domestic pharmaceutical manufacturing by streamlining FDA reviews and foreign inspections. While this could benefit large-cap firms with U.S. facilities, Prasad’s insistence on stringent evidence requirements complicates the narrative.

• Domestic Manufacturing Wins: The order mandates a 180-day review of FDA protocols to cut facility approval times from 5–10 years to 1–2 years. Companies like Pfizer, with robust U.S. infrastructure, stand to gain.
• Foreign Facility Scrutiny: Increased inspections of overseas manufacturers may disrupt supply chains, raising costs for companies reliant on global inputs.

ETF Strategies in a Volatile Landscape

Investors have two paths:
1. Bearish Plays: Short positions in biotech ETFs like XBI or sector-specific funds have rewarded skeptics. The ETF’s decline reflects heightened risks for firms with thin pipelines or reliance on accelerated approvals.
2. Diversified Exposure: The Harvest Healthcare Leaders Income ETF (HHL), which holds large-cap firms like Moderna and Johnson & Johnson, offers stability. Its focus on diversified revenue streams and strong balance sheets helps mitigate regulatory overhang.

Conclusion: A Sector Divided by Evidence and Policy

The interplay of Prasad’s regulatory rigor and manufacturing reforms has created a bifurcated market.

• Winners:
• Pfizer saw Comirnaty sales jump 62% in Q1 2025, thanks to expanded RSV vaccine approvals and cost savings of $4.5B by 2025. Its diversified pipeline and U.S. manufacturing scale position it as a relative safe haven.

• HHL ETFs benefit from exposure to leaders like Eli Lilly (GLP-1 drugs) and Merck (recent SpringWorks acquisition), which navigate regulatory hurdles with deeper pockets.

• Losers:

• Smaller biotechs reliant on fast-track approvals face delays or rejections. Sarepta’s Elevidys, criticized by Prasad for “uncertain benefits,” exemplifies the new scrutiny.
• Global supply chains are under pressure: Valneva, a European vaccine maker, saw its chikungunya vaccine (IXCHIQ®) face FDA precautions for elderly patients, highlighting geopolitical and regulatory risks.

The data underscores a sector in transition. While Prasad’s reforms may curb overhyped therapies, they also risk stifling innovation. Investors betting against the sector have been rewarded, but long-term success hinges on balancing regulatory resilience with exposure to domestic manufacturing winners. For now, the bearish thesis holds—until the FDA’s new guard proves it can accelerate progress without compromising safety.