Biotech has staged one of the most dramatic comebacks in the market this year, and veteran fund managers say the rally is far from over. The State Street SPDR S&P Biotech ETF (XBI) has surged nearly 80% over the past 12 months, while the iShares Biotechnology ETF (IBB) is up more than 40%. For comparison, the S&P 500 is up about 19% over the same period. The sector is being driven by a powerful combination: a wave of expiring pharmaceutical patents forcing large drugmakers to acquire smaller biotech companies, a rebound in clinical trial activity, and a regulatory environment that has grown more hospitable to drug approvals.
One of the standout stories this year is Revolution Medicines (RVMD), a clinical-stage oncology company whose shares have more than doubled — up 130% — after its drug daraxonrasib succeeded in a Phase 3 pancreatic cancer trial. The drug doubled survival length and cut the risk of death by 60% compared to chemotherapy, and FDA approval is now widely expected. Evan McCulloch, lead portfolio manager of the Franklin Biotechnology Discovery Fund (FBDIX) — which has outperformed its peer group on 1-, 3-, 5-, and 10-year bases — calls RevMed one of the most talked-about positions in his portfolio. The fund is up more than 18% in 2026 after surging over 50% in 2025. M&A activity remains a major catalyst. Big pharma companies including Pfizer, AstraZeneca, and Merck face patent cliffs that will erode billions in revenue over the next three to five years, making acquisitions of smaller biotech firms with proven drug pipelines a financial necessity. Historical precedent shows that biotech M&A waves can send target stock prices up 50–100% overnight when deals are announced.
For retail investors, the XBI and IBB ETFs offer diversified exposure with very different risk profiles. XBI’s equal-weighting means smaller companies drive more of the return — it has a one-year standard deviation of 19% versus 13% for the S&P 500, so volatility is real. IBB’s market-cap weighting gives more exposure to established names like Amgen, Regeneron, and Gilead. The artificial intelligence angle is also emerging as a tailwind: AI-powered drug discovery is compressing development timelines, and analysts expect it to become a structural driver of the sector over the next five to ten years. If you don’t have biotech exposure yet, the pullbacks that tend to follow strong runs are worth watching as entry points.
