Biotech stocks saw a strong rebound in 2025, with the S&P 500 Biotech Index (XBI) rising by 37% for the year, according to Truist Securities. This performance was attributed to easing concerns over policy and regulatory risks, increased confidence in industry fundamentals, and renewed activity in mergers and acquisitions. BMO Capital Markets highlighted that clinical successes and effective equity fundraising also contributed to improved sentiment among investors.
Truist Securities expects this positive momentum to extend into 2026, driven by ongoing innovation in the sector. "Biotech’s performance through 2H25 has largely made up for a tumultuous 2+ year period in the sector," Truist stated. "We see 2026 defined by strategic partnerships & activities, margin stability, and innovation-led growth."
Mizuho Securities pointed out that continued volatility at the U.S. Food and Drug Administration (FDA) remains a key risk for the coming year. However, Truist noted that despite turnover in FDA leadership and uncertainty over new policy initiatives, approval rates have remained steady with minimal delays.
Looking ahead to 2026, analysts say competition will be particularly intense in therapeutic areas such as oncology—specifically HER2 and TROP2 targets—and inflammation/immunology with TIGIT and TL1A therapies. Truist commented: "Across all therapeutic categories, we expect investors in 2026 to reward companies with truly best-in-class profiles and tangible paths to market, while penalizing programs perceived as incremental or crowded."
BMO Capital Markets identified Gilead Sciences, Eli Lilly, Regeneron Pharmaceuticals, and Merck as pharmaceutical companies of interest for next year. The firm stated: "With what felt like sector whiplash in 2025, we remain optimistic into 2026... Sector headline risk has meaningfully dissipated, driving what we believe will be increased exposure to U.S. biopharma."
In addition to established firms, analysts flagged Summit Therapeutics, Apogee Therapeutics, Axsome Therapeutics, and Cytokinetics as biotech names worth watching.
Key therapeutic areas expected to drive growth include obesity treatments—highlighted by ongoing competition between Eli Lilly and Novo Nordisk—as well as Alzheimer’s disease therapies, genetic medicine advances, central nervous system disorders treatments, cell therapy innovations, HIV prevention methods (PrEP), vaccines development efforts, cardiovascular disease interventions and kidney disease research.
Innovation is anticipated to play a major role through advancements in molecular degraders, RNA-based therapies, next-generation bispecifics technology, radiopharmaceuticals development and antibody-drug conjugates (ADCs). According to Truist: "The net effect is a broadening of investable technologies and a pipeline that is far more diversified and clinically de-risked than in prior cycles."
Despite growing optimism for biotech investments going into next year,BMO cautioned that sustained progress would depend on continued clarity around policies affecting the industry—including vaccine regulation—a stable economic environment regarding interest rates,and renewed activity within capital markets focused on business development,M&A deals,and operational discipline among biotech firms.
