April 2025 was the point that biotech began to emerge from a two-year slump. Since then, the sector has hit a near-historic run; RBC’s Global Biotech Outlook considers whether that can be sustained in 2026.
Signals are strong, but opportunities more elusive
Many of the signs remain positive for the year ahead. Drug launches have been strong, investor sentiment is still favorable, and capital inflows are spiking. Falling interest rates would also be supportive, especially for unprofitable smaller caps.
While valuations surge, Brian Abrahams, Head of Global Healthcare Research, does not believe the sector has entered a bubble. He points out that the XBI index has experienced its current point of $120 before, most recently in December 2021.
However, Abrahams highlights other factors that could temper momentum. Fundamental valuations are now at less compelling levels, while regulatory volatility is likely to persist, and innovative areas are becoming crowded.
“We’re probably in the sixth inning of this rally now,” he believes. “Intriguing opportunities still exist, but in 2026 investors are going to need to look a bit harder to find them.”
“Intriguing opportunities still exist, but in 2026 investors are going to need to look a bit harder to find them.”
Brian Abrahams, Head of Global Healthcare Research
Innovation abounds across multiple categories
Abrahams is bullish about innovation in the sector, which remains buoyant. The revolution promised by anti-obesity drugs, for example, may just be getting started.
“Access to GLP-1s and related obesity medicines is only going to continue to improve, with prices coming down and next-gen therapies improving tolerability,” he says. “With more individuals able to take obesity medicines and to stay on them for longer, the effect on societal health spans will be transformative.
“Beyond obesity, protein degraders could revolutionize therapeutics, harnessing the body's own systems to remove pathogenic signaling factors or cancer cells and target previously undruggable diseases.”
RBC also expects 2026 to see psychedelic drugs enter the mainstream, with several companies due to report Phase 3 data in the first half of the year.
Other areas being closely watched include a reshaping of preventative medicine through advances such as AI-driven biometric monitoring, personalized digital wellness platforms, and novel long-acting agents to prevent infections such as HIV.
“Access to GLP-1s and related obesity medicines is only going to continue to improve, with prices coming down and next-gen therapies improving tolerability.”
Brian Abrahams, Head of Global Healthcare Research
Biotechs are doing it for themselves
Many small and midcap biotechs have been among the winners of the sector’s recent resurgence. Having achieved successful launches, significant growth and in some cases profitability, they are looking to 2026 with optimism.
Abrahams sees a significant shift from the old assumption that biotechs were unable to launch drugs without big pharma’s commercial muscle.
“It’s really changed the market dynamics around the value they can create and potential stock appreciation that they can generate on their own – and it's given biotechs a lot more leverage in potential takeouts,” he says.
Meanwhile, Chinese threats to the U.S. biotech space have so far been muted, with activity mostly limited to spaces such as cell therapy or antibody drug conjugates. There are also positives for the U.S. sector, with smaller players benefiting from the in-licensing of cheaper early assets from China.
“The increasing accessibility of China as a potential end market for commercial products could provide biotechs with another important revenue source,” Abrahams notes.
Policy fears recede, but regulation is a concern
Biotech started 2025 with apprehension about the impact of healthcare policies such as trade tariffs, Most Favored Nation, and the Inflation Reduction Act. In the event, the effects were significantly less than feared.
Abrahams believes this will generally continue, though Medicaid changes could start to affect overall utilization in 2026, and the midterm elections may trigger new rhetoric around drug pricing.
Regulation is perceived by investors as the sector’s biggest tailwind, according to RBC’s research. This is despite the Food and Drug Administration’s generally pro-industry stance and its emphasis on speeding up drug development and improving transparency.
Abrahams agrees that multiple leadership changes in the Center for Drug Evaluation and Research have contributed to mixed messages from the agency in drug review processes.
“In a sector so reliant on regulators, this type of inconsistency has challenged investability and caused a lot of stock volatility,” he says.
M&A momentum appears set to persist
With healthy balance sheets across large biopharma, 2025’s strong momentum in M&A activity could persist at least into early 2026. A more permissive Federal Trade Commission and a pattern of deal activity following midterm elections are potential supporting factors.
As Abrahams points out, the need is enormous, with transactions to date far short of filling the $400 billion revenue gap set to be lost by big pharmas to patent cliffs over the next 10 years.
There is potential for slowdown later in the year, however: “Expectations are already pretty high. Our surveyed investors view M&A as the biggest tailwind in biotech, so there's probably some takeout premium already embedded in a number of small and mid-cap companies.”
