Why 2026 may be a strong year for biotech stocks

Adam

Summary:

Biotech stocks could extend gains in 2026 as pricing fears fade, market structure improves, rate cuts support financing, and strong merger activity boosts valuations and investor confidence.

Biotech stocks have staged an impressive rally over the past six months, with the XBI index – key benchmark for small and mid-cap biotech names – posting one of its strongest stretches on record.

Mizuho’s senior healthcare analyst Jared Holz believes this momentum is more than a short-term bounce.

Speaking with CNBC, he argued the sector is positioned for continued strength in 2026, supported by easing drug pricing concerns, healthier market dynamics, and robust merger activity.

While volatility is inherent in biotech, Holz sees the current environment as one of the most bullish for biotech stocks in years.

Why is Mizuho bullish on biotech stocks?

For years, uncertainty related to drug pricing weighed heavily on biotech valuations.

The Inflation Reduction Act (IRA) and negotiations with the White House created a noisy backdrop that deterred investors.

However, under the Trump administration, “a dozen pharma companies have agreed with White House on pricing mechanisms,” Holz told CNBC, suggesting much of the uncertainty is now behind the sector.

With the most contentious debates resolved, investors are beginning to view pharma and biotech stocks as more investable.

According to the Mizuho analyst, this thawing of rhetoric will allow multiples to expand further, as the market no longer fears sudden regulatory shocks.

In his view, 2026 could mark a turning point where pricing risks fade into the background.

Market structure bodes well for biotech stocks

Another reason Jared Holz is constructive is the healthier structure of the biotech market itself.

The sheer number of listed biotech assets overwhelmed investors for years, creating a “denominator problem” that diluted attention and capital.

This exponential increase in the listed biotech firms was a major reason for Holz’s bearish stance in the past.

However, with fewer new entrants and more rationalised pipelines, investors can better analyse opportunities now, the Mizuho analyst argued in the CNBC interview.

Combined with the prospect of more rate cuts, which would improve financing conditions, biotech stocks look increasingly attractive for 2026.

Additionally, the sector’s recent six-month winning streak is unprecedented, which Holz said is indicative of renewed confidence among institutional investors heading into the new year.

Merger activity could drive biotech stocks higher

Finally, Holz expects deal-making to serve as a powerful tailwind for biotech stocks in 2026.

“20 deals worth over $500 million just this year in publicly traded equities,” he noted, highlighting the scale of consolidation.

Beyond public markets, private biotech has also seen notable acquisition activity.

This wave of mergers not only validates the value of biotech innovation but also provides liquidity and confidence to investors.

Larger pharmaceutical companies are increasingly turning to biotech firms for pipeline expansion, reinforcing the sector’s strategic importance.

According to Jared Holz, this trend will continue next year, creating catalysts for valuations and sustaining momentum in small and mid-cap biotech stocks.

Source: invezz

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