After a year marked by dramatic ups and downs, William Blair analysts say 2026 could carry forward the industry’s current momentum—as long as strong clinical data continue to be rewarded and companies can bring drugs to market without major government pricing regulations.
This year has been defined by deep uncertainty, largely rooted in federal actions occurring under President Donald Trump after he took office for the second time. The XBI—a performance tracker for U.S. biotech companies—started the year with a 20% drop-off, bottoming out April 4 at $66. The low succeeded Trump’s Liberation Day Tariffs announced April 2.
“At that point, investor sentiment was extremely poor, as political headwinds continued a multiyear underperformance of the sector, particularly in comparison to the continued strength of the tech sector,” William Blair analysts wrote in a Dec. 10 note.
But, since April, the biotech-specific index has recovered, climbing nearly 75% to hit levels that haven’t been reached since the end of 2021.
Deep market uncertainty still exists, particularly centered around U.S. drug pricing and changing dynamics at the FDA, with only three senior leaders in place from a year ago. Given the continued changes at the agency and “lack of scientific rigor in discussions about vaccine regulations,” the analysts don’t see the related uncertainty disappearing in 2026.
William Blair pointed to certain FDA efforts that have positive implications, like releasing redacted complete response letters, but underscored that the most vital consideration for investors is consistency in regulatory standards for reviews.
The analysts also highlighted the growing risk that China could overtake the nation’s biopharma position, noting the increasing level of M&A involving Chinese assets is unlikely to fade.
Despite these trends, William Blair believes “continued strong clinical data, commercial launches and M&A will keep the sector performing better than the bear markets of 2021 through 2024.”
That’s not to say the aforementioned risks are gone, but, instead, that most investors “believe the worst-case scenarios are off the table,” William Blair analysts wrote, citing commitments to onshoring manufacturing and the resolution of some of the “biggest” fears related to Trump’s most-favored nation policy.
The analyst’s optimism is also rooted in continued M&A activity, with 2025 recording the most deal volume for the sector in the last decade. As of mid-December, the sector saw just under 70 deals with a disclosed value of $20 million or more.
The lack of large M&A deals means 2025’s total deal value still falls below many past years, but William Blair thinks the overall volume has boosted investor sentiment. The uptick also supports the idea that Big Pharmas need dealmaking to bolster their pipelines, especially as large patent cliffs loom.
For 2026, William Blair analysts believe the sector can maintain most of the momentum, though the firm doesn’t think “the XBI as a whole needs to meaningfully outperform,” citing index-specific limitations such as its larger-cap bias.
“As long as the sector continues to reward strong clinical results and companies are able to commercially launch drugs without significant government regulations around pricing, we believe specialist investment in biotech can continue to have strong performance,” the analysts concluded.