The spectacular rally that life sciences and biopharma stocks enjoyed in the second half of last year came to an end in January. Even though the Nasdaq Biotechnology Index rose 2.5 percent last month, most hedge funds that specialize in investing in these fledgling companies lost money.

Last year, many biopharma funds were among the top-performing hedge funds, led by Perceptive Advisors, which surged 82 percent. Investors remain optimistic that the upswing will continue in 2026.

“Many companies enter 2026 with cleaner balance sheets and clearer paths to late‑stage readouts, setting the stage for a catalyst‑rich year,” wrote Janus Henderson’s biotech innovation strategy team in a February 10 report. “On the regulatory front, the FDA’s 2025 approval activity remained broadly consistent with historical averages, helping support planning across the sector.”

In January, the Janus Henderson Biotech Innovation Fund dropped less than 1 percent, according to an investor. RA Capital Management was roughly flat. Most other biopharma funds saw losses in the single digits.

For example, RTW Investments fell 6 percent in January. It was badly hurt by a nearly 16 percent decline in Madrigal Pharmaceuticals, its largest long at the end of the third quarter, which accounted for more than 11 percent of U.S. common stock assets.

Soleus Capital was off 4.9 percent for the month. This is somewhat surprising given that its largest long — Krystal Biotech — jumped 13.4 percent in January. Krystal made up more than 9 percent of assets at the end of the third quarter. However, Beta Bionics, Soleus’s fifth-largest common stock long at the end of September, lost more than half its value last month after reporting disappointing preliminary results for the fourth quarter.

Elsewhere, Averill saw a 3 percent slump in its main fund and a 4.8 percent drop in Averill Madison. 

Avoro Capital Advisors also dropped 3 percent in January. Madrigal was its third-largest long at the end of the third quarter, and Krystal its fifth-largest. No. 2 long United Therapeutics lost nearly 4 percent last month.

Perceptive, last year’s champ, declined by 2.53 percent in January. No. 7 long Travere Therapeutics was the big detractor among its largest holdings, dropping nearly 19 percent.

Affinity Healthcare Fund, for its part, was off by 2.55 percent. Shares of Insmed, one of its biggest holdings, fell 10 percent for the month. Affinity was also hurt by the sell-off in Madrigal, another major holding. On the other hand, shares of No. 1 long Ventyx Biosciences gained more than 54 percent after Eli Lilly agreed to buy the company for $1.2 billion.

Casdin Capital was down about 2 percent in January.