Biotech stocks have rallied strongly into 2026, building on the late-2025 momentum from positive clinical data, cheaper valuation, easy money policy and favorable macro conditions. Biotech-based exchange-traded fund (ETF) iShares Biotechnology ETF IBB rallied 36.7% in six months ending Jan. 7, 2026, outperforming SPDR S&P 500 ETF Trust SPY (up 11.2%). Year to date, IBB has risen 4.2% compared with SPY’s 0.6% gain.
Note that IBB has surged 31.1% over the past one year (as of Jan. 7, 2026). The performance marked a sharp turnaround in 2025. The MSCI USA Pharmaceuticals, Biotechnology and Life Sciences Index (USD) offered muted returns of 3.74% in 2024 and 0.97% in 2023. The returns were too shallow, given the 25.1% and 27.1% returns offered by the MSCI USA index, respectively, in 2024 and 2023.
More specifically, the Biomedical and Genetics industry has returned 11.7% over the past three-month period, respectively, outstripping returns offered by the S&P 500 (up 3.3%) (at the time of writing).
Reasons Behind the Rally
The space has surged lately due to a host of factors. Below, we highlight a few of them.
Decent Valuations of Biotech
Even with the recent rally, biotech stocks trade below the broader stock market. The MSCI USA Pharmaceuticals, Biotechnology and Life Sciences Index traded at a forward P/E of 24.36X versus 27.81X possessed by the MSCI USA index as of Dec. 31, 2025.
The PEG ratio of the Biomedical and Genetics industry was 1.54X versus the 2.06X ratio held by the S&P 500. Moreover, projected EPS growth for the Biomedical and Genetics stocks is 12.14% versus the S&P 500’s 9.15%.
Fed Rate Cut
Biotech companies usually remain in need of cheaper funding. The Fed enacted three rate cuts in 2025. The central bank may cut rates further in the coming days. Biotech, being a high-growth sector, performs well in a lower rate environment.
Clinical & Regulatory Wins
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 46 approvals were recorded in 2025, followed by 50 approvals in 2024 and about 55 approvals in 2023. Positive drug-trial results now reward stocks. The momentum is carrying into 2026 with launches like the first oral GLP-1 obesity pill, energizing the space.???
Regulatory Tailwinds in the Cards?
Lingering uncertainties around tariffs and trade measures are concerning. Then again, 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).
M&A & Capital Revival
Deal volume hit decade highs in 2025 (nearly 70 deals), driven by Big Pharma's patent cliff needs, boosting sentiment into 2026. Per UBS, follow-on offerings reached $10 billion in fourth-quarter 2025 — the strongest in nearly two years, reopening IPO windows, as quoted on Investing.
Biopharma venture investment totaled $5.8 billion across 86 rounds in the third quarter of 2025, per a J.P. Morgan report issued on Oct. 15, 2025, taking the year-to-date number to $17.1 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
The following biotech ETFs have been hovering around a one-year high. These ETFs include Tema Oncology ETF CANC, S&P Biotech SPDR XBI, Genomics Immunology and Health ETF IDNA and IBB.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
iShares Biotechnology ETF (IBB): ETF Research Reports SPDR S&P 500 ETF (SPY): ETF Research Reports State Street SPDR S&P Biotech ETF (XBI): ETF Research Reports iShares Genomics Immunology and Healthcare ETF (IDNA): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
