The second half finished strong after two tumultuous years. What will 2026 bring for the biotech sector?
“Biotech is making money again,” Mizuho Securities declared to cap off 2025. The sentiment was echoed across a handful of sector previews as analysts reflected on a turbulent year in life sciences.
The S&P 500 Biotech Index, the XBI, rallied in the second half, finishing up 37% year to date, according to Truist Securities. That has been driven by some settlement on policy and regulatory risks, more confidence in industry fundamentals and the revival of M&A. BMO Capital Markets said clinical wins and successful equity raises also helped buoy sentiment.
Truist expects this rally to continue into 2026, as biotech carries over the momentum of innovation into the new year.
“Biotech’s performance through 2H25 has largely made up for a tumultuous 2+ year period in the sector,” Truist wrote. “We see 2026 defined by strategic partnerships & activities, margin stability, and innovation-led growth.”
But the biggest risk to watch out for in 2026, according to Mizuho, is continued volatility at the FDA. Despite the high level of leadership turnover and questions over new policy initiatives, however, FDA approvals are comparable to recent years with few delays, Truist noted.
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“Though we expect regulatory dynamics in 2026 to continue evolving, policy risk remains a headwind, though improving,” Truist wrote.
Other challenges could include competition, particularly in areas with “accelerating innovation cycles,” such as HER2 and TROP2 in oncology and TIGIT and TL1A in inflammation and immunology (I&I), Truist said.
“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,” Truist wrote.
BMO pointed to Gilead, Eli Lilly, Regeneron and Merck from the pharma world as names to watch for 2026. “With what felt like sector whiplash in 2025, we remain optimistic into 2026,” the team’s analysts said. “Sector headline risk has meaningfully dissipated, driving what we believe will be increased exposure to U.S. biopharma.”
Biotech names to watch flagged by the analysts include Summit Therapeutics, Apogee Therapeutics, Axsome Therapeutics and Cytokinetics.
Key therapeutics areas for the sector in 2026 include obesity, with the battle of Eli Lilly and Novo Nordisk one of the key tales of 2025, according to Mizuho. Other areas for investors to consider include Alzheimer’s disease, genetic medicine, central nervous system disorders, I&I, cell therapy, HIV PrEP, vaccines, cardiovascular and kidney disease.
Innovation will be a key driver, including in modalities like molecular degraders, RNA therapies, next-gen bispecifics, radiopharmaceuticals and antibody-drug conjugates (ADCs), Truist noted.
“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,” the firm wrote.
With all this optimism, BMO still urged investors to “hold on for dear life.” To continue the upward momentum, the industry will need continued policy clarity, more stable vaccine regulatory guidance and a “more benign rate backdrop.” The firm would also like to see a thaw in the capital markets, focused business development and M&A activity and continued operational discipline among companies.
