Biotech-based exchange-traded fund (“ETF”) iShares Biotechnology ETF IBB rallied 30.2% over the past six months (as of Oct. 15, 2025), outperforming SPDR S&P 500 ETF Trust SPY (up 26.5%). Year to date, IBB has risen 15.4% versus SPY’s 13.7% gain.
MSCI USA Pharmaceuticals, Biotechnology and Life Sciences Index (USD) has offered muted returns of 3.74% and 0.97% in 2024 and 2023, respectively. The returns were too shallow, given the 25.1% and 27.1% returns offered by the MSCI USA index in 2024 and 2023.
More specifically, the Biomedical and Genetics industry has returned 9.35% and 4.64% over the past three and one months, outstripping returns offered by the S&P 500. In the past three months, the S&P 500 has rallied 6.33% and has advanced 1.02% in the past month.
Reason Behind the Rally
The space has surged lately due to a host of factors. Below, we highlight a few of them.
Cheaper Valuations of Biotech
Even with the recent rally, biotech stocks trade below the broader stock market. MSCI USA Pharmaceuticals, Biotechnology and Life Sciences Index trades at a forward P/E of 15.92X versus 23.25X possessed by the MSCI USA index.
The Biomedical and Genetics industry trades at a forward P/E of 19.66X versus the S&P 500’s value of 20.13X. The PEG ratio of the industry is 1.85X versus the 2.31X ratio held by the S&P 500. Moreover, projected EPS growth for the Biomedical and Genetics stocks is 19.12% versus the S&P 500’s projected EPS growth of 6.88%.
Fed Rate Cut Hopes
Biotech companies normally remain in need of cheaper funding. The smaller the size and scale of the company, the greater the need. The Fed has enacted its first rate cut of 2025 in September. The Fed may cut rates further this year.
We will probably not see the return of rock-bottom levels of rates seen in 2020, but the decline in the present levels is another positive. Biotech, being a high-growth sector, performs well in a falling rate environment.
Regulatory Tailwinds in the Cards?
The lingering uncertainties around tariffs and trade measures are concerning. President Trump has threatened to impose heavy tariffs, as high as 250% (as quoted on CNBC) on pharmaceutical imports over time. Trump wants American pharma companies to shift pharmaceutical production back to the United States.
But then, Pfizer recently struck a deal with the U.S. government to lower prices on certain drugs for Americans enrolled in Medicaid and committed to investing $70 billion in the United States. In return, the company secured a three-year reprieve from import tariffs. AstraZeneca, too, made a deal with Trump to lower drug prices and dodge tariffs (read: 4 Reasons to Buy Pharma ETFs Now for a Healthy Portfolio).
These deals are the latest signal of relief for the pharmaceutical industry after months of uncertainty.
Steady Flow of FDA Approvals
In 2025, the FDA approved quite a few biotechnology drugs, including dordaviprone for diffuse midline glioma, sunvozertinib for non-small cell lung cancer and linvoseltamab-gcpt for multiple myeloma. Other approvals include Wayrilz (rilzabrutinib) for immune thrombocytopenia, and paltusotine for acromegaly. About 33 approvals have been received so far, followed by 50 approvals in 2024 and about 55 approvals in 2023.
Biotech Deal Activities
Biopharma venture investment totaled $5.8 billion across 86 rounds in the third quarter of 2025, per a J.P. Morgan report, bringing the year-to-date number to $17.1 billion. Biopharma completed 35 M&A transactions totaling $30.8 billion. Meanwhile, biopharma completed seven IPOs year to date, raising $1.1 billion.
The J.P. Morgan report went on to highlight that the licensing scenario continued to support larger, later-stage deals in the third quarter of 2025, with biopharma licensing reaching $63.7 billion in quarterly announced value and $183.7 billion in the year-to-date frame.
Biotech ETFs in Focus
Top-performing biotech ETFs of this year include ARK Genomic Revolution ETF ARKG (up 29.6%), ALPS Medical Breakthroughs ETF SBIO (up 24.4%), Virtus LifeSci Biotech Clinical Trials ETF BBC (up 22.1%), Tema Oncology ETF CANC (up 21.3%) and Virtus LifeSci Biotech Products ETF BBP (up 18.3%).
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iShares Biotechnology ETF (IBB): ETF Research Reports SPDR S&P 500 ETF (SPY): ETF Research Reports Virtus LifeSci Biotech Clinical Trials ETF (BBC): ETF Research Reports ALPS Medical Breakthroughs ETF (SBIO): ETF Research Reports Virtus LifeSci Biotech Products ETF (BBP): ETF Research Reports ARK Genomic Revolution ETF (ARKG): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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