The biotech sector is experiencing a significant resurgence, driven by advancements in drug innovation, M&A activity, and transformative technologies like mRNA, genomics, and artificial intelligence. After a challenging period post-COVID, new clinical trial successes for conditions like cancer, inflammation, and obesity are attracting substantial investor interest. This article explores the forces behind this boom and identifies key investment opportunities in both established and emerging biotech firms and ETFs, including insights from industry analysts.
Despite a momentary scare from Moderna's stock dip, the biotech sector is vibrant, with many companies experiencing significant gains. The iShares Biotechnology ETF (IBB) has climbed 24% year-to-date through October 23rd, building on a 28% surge in 2025. Impressively, two dozen of IBB’s 233 holdings have more than doubled this year, with Moderna leading the charge with a remarkable 587% increase, even after an 18% decline following positive clinical data for its cancer vaccine. A video featuring analysts discussing these massive gains in biotech stocks is available to watch below (4:41).
Industry analysts indicate the commencement of a robust new biotech cycle, propelled by breakthroughs in clinical trials, strategic mergers and acquisitions, and cutting-edge technologies such as genomics, mRNA, and artificial intelligence. John Hall, portfolio manager of the T. Rowe Price Biotechnology ETF, notes, “We’re in the midst of a powerful innovation cycle. What’s super exciting is we’re seeing newer modalities start to make it to market.” He emphasizes improved understanding of disease biology, potentially leading to a higher number of novel drugs reaching the market.
Investor enthusiasm is particularly high for technologies like mRNA and genomics, alongside a steady stream of new drug approvals. In 2025, the FDA granted approval to approximately a dozen novel biologic drugs out of 46 total approvals. Currently, around 66 novel drugs are awaiting FDA approval, including potential blockbusters such as Moderna and Merck’s cancer drug for melanoma, and Eli Lilly’s next-generation obesity treatment. Analysts believe AI could further accelerate drug approvals, leveraging software to streamline development processes.
Piper Sandler analyst Ted Tenthoff asserts, “Biotech is a phenomenal application for artificial intelligence and machine learning. You can set up exciting predictive models that, frankly, can do things that we’ve never been able to do in the space in terms of novel drug discovery.”
The sector is rebounding from a subdued period that followed the Covid-era boom. During the pandemic, ultra-low interest rates spurred investment in early-stage drug developers, and mRNA vaccines boosted revenues for companies like Moderna, Pfizer, and Biontech. However, a subsequent cooling period saw many early-stage ventures falter, demand for Covid vaccines diminish, and rising interest rates stifle IPOs and M&A activity.
While inherent risks in drug development persist—products require years to develop, with more failures than successes—analysts now perceive a healthier outlook. This is reflected in strong performance and enhanced valuations, presenting compelling reasons for continued investment. An interactive chart below illustrates the iShares Biotechnology ETF (IBB) performance year-to-date.
Innovating is paying off
Recent clinical trial outcomes are fueling excitement, suggesting that novel drugs in development could address some of the most challenging medical conditions. For instance, Moderna and Merck’s melanoma drug utilizes mRNA to stimulate an immune response, targeting surgically removed and genetically analyzed tumors. While not a preventive vaccine, its immunological mechanism, when combined with Merck’s Keytruda, demonstrated a 42% reduction in cancer recurrence or death. Although Phase 3 results initially disappointed Wall Street, oncologists lauded the highly positive outcomes, viewing the technology as a potential game-changer for personalized cancer treatments. Moderna and Merck plan to seek FDA approval and launch the drug by 2027.
Inflammation treatment is another area showing significant promise. AstraZeneca and Amgen recently announced positive Phase 3 results for an additional application of their drug Tezspire, an injectable currently approved for nasal polyps and asthma. Trials showed it effectively alleviated swallowing symptoms and repaired microscopic and visual tissue damage in patients with severe throat inflammation. Meanwhile, Roche secured FDA approval for its drug Enspryng, a therapy for rare inflammatory and autoimmune diseases, becoming the first and only at-home injection for adults with thyroid eye disease.
Obesity drugs are also advancing beyond first-generation GLP-1s. Eli Lilly’s retatrutide, a “triple agonist” targeting three distinct hormone receptors, successfully completed two more clinical trials over the summer, achieving 28%-30% weight loss at its highest doses. Eli Lilly intends to submit the drug for FDA approval in the first quarter of 2027.
High-tech tools and M&A
Much of the current innovation extends beyond drug-making to areas such as gene sequencing, mRNA technologies, and advanced instruments. Illumina, a leader in DNA and gene sequencing, has seen its stock more than double this year, driven by accelerating demand for its NovaSeq X high-end sequencing platform. Pharmaceutical giants like Bristol-Myers Squibb, Merck, and Kura are collaborating with Illumina to develop precision oncology solutions. Another significant performer is 10x Genomics, which has surged over 300%. This biotech firm supplies lab instruments that aid scientists in cancer, immunology, and neuroscience research, with its Atera platform generating data sets crucial for training AI models, thereby accelerating personalized therapies.
Regarding AI, companies are leveraging the technology for more efficient drug discovery. Shreefāl Mehta, president of Guidant BioTherapeutics, states that AI allows drugs to reach clinical trials with less capital, attracting more investment into companies demonstrating this capability. Forecasts by Towards Health indicate that the global AI in drug discovery market will expand from $20 billion in 2025 to over $160 billion by 2035. The interactive chart below displays Illumina's year-to-date performance.
Mergers and acquisitions also serve as a key catalyst for the sector. Biopharma dealmaking reached $134 billion in the first half of 2026, surpassing the $112 billion for all of 2025, according to Jeet Mukherjee, a biotech analyst at BTIG. This signals growing clinical promise in developing drugs. Big Pharma companies face an impending “patent cliff,” with products generating $180 billion in revenue losing exclusivity by 2030, according to RTW Institute research. These companies are actively seeking novel and innovative products to bolster their pipelines, as Mehta notes. Furthermore, the success of GLP-1 blockbusters has left some companies, such as Eli Lilly, flush with cash for acquisitions, with Lilly completing 10 deals worth $25 billion in 2026 alone.
Where to invest in biotech now
ETFs provide a way to capture this investment theme, though their structures vary. The iShares Biotech ETF (IBB) is a lower-cost fund tracking a market-cap weighted index of biotech stocks, with top holdings including Gilead Sciences, Amgen, Vertex Pharmaceuticals, and Moderna. In contrast, the State Street SPDR S&P Biotech ETF (XBI) employs an equal-weighting strategy, offering greater exposure to small- and mid-cap companies, with leading positions in Moderna, Natera, Twist Bioscience, and Halozyme Therapeutics. An interactive chart illustrates the State Street SPDR S&P Biotech ETF's year-to-date performance.
Piper Sandler identifies Illumina and 10x Genomics as primary “infrastructure plays” in life sciences, recognizing their technologies as instrumental in driving the next generation of precision medicine. Piper analyst David Westenberg holds a buy rating and a $305 target on Illumina, suggesting a 14% gain from recent prices around $267. He maintains a hold rating on 10x Genomics with an $80 target, above its recent price of about $70.
Twist Bioscience is another company worthy of consideration, specializing in customized synthetic DNA and DNA sequencing tools. Twist has forged partnerships with Eli Lilly’s AI and machine-learning platform and collaborated with Anthropic in August to test its AI model, Claude, for protein development. While Twist is not projected to achieve EPS profitability until 2029, its revenue is anticipated to grow from $572 million in 2027 to $833 million in 2029. Analysts have an average target of $168 on the stock, implying 21% returns from recent prices around $138.
In the small-cap segment, Piper Sandler’s Tenthoff favors Monte Rosa Therapeutics, a pioneer in protein degradation focusing on selectively destroying disease-causing proteins. The firm has partnered with Novartis to develop a drug for inflammatory and autoimmune conditions, with a Phase 2 clinical study announced in September for an autoimmune disease treatment, which Tenthoff notes has been “triggering milestones to Monte Rosa.” Tenthoff has a buy rating and a $37 target on the stock, which recently traded around $10.70.
Also within the small-cap arena, BTIG’s Mukherjee recommends Faeth Therapeutics. This biotech is developing a novel two-drug regimen for breast cancer and other tumors, which Mukherjee believes “has the potential to address safety and dosing limitations of another recently approved drug for breast cancer” and could become “a mainstay of the future breast cancer treatment paradigm and other cancers.” Despite being a clinical-stage company yet to bring a drug to market, Faeth’s stock is up 93% year-to-date on positive clinical trial results, trading around $18. Mukherjee has set a $55 target for it.
Kymera Therapeutics also merits consideration. The company is developing an oral version of the blockbuster drug Dupixent (co-developed by Regeneron Pharmaceuticals and Sanofi). Mukherjee highlights that oral agents are often preferred by patients, and Kymera’s drug “has the potential to not only take share from patients taking Dupixent for numerous immunological diseases but also expanding the market to those not taking systemic biologic drugs.” Kymera anticipates no patent conflict over Dupixent, as its drug is distinct rather than a biosimilar. T. Rowe’s Hall also expresses enthusiasm for Kymera’s potential “to unlock disease targets that have been classically considered un-druggable,” making it the second-largest holding in T. Rowe’s Biotech ETF, accounting for 4.2% of the portfolio.
