Biotech stocks rally on drug innovation and M&A

Moderna gave investors a scare as its stock plunged on Thursday. But it’s still one of the hottest biotechs this year. And it’s hardly alone – the sector is on a roll and looks poised for more gains.

The iShares Biotechnology ETF (IBB) is up 24% through October 23, building on a 28% gain in 2025. Two dozen of the ETF’s 233 holdings have more than doubled year-to-date. Moderna leads the pack with a 587% surge — even after an 18% decline following a leak of clinical data for its cancer vaccine (which was actually positive).

Analysts say a new biotech cycle is underway, fueled by clinical trial results, M&A activity, and promising technologies such as genomics, mRNA — and AI.

“We’re in the midst of a powerful innovation cycle,” said John Hall, portfolio manager of the T. Rowe Price Biotechnology ETF. “What’s super exciting is we’re seeing newer modalities start to make it to market.” Companies “understand the disease biology better,” he adds, and that could ultimately lead to more novel drugs making it to market.

Investors are excited about technologies like mRNA and genomics, along with a steady stream of new drug approvals. The FDA approved about a dozen novel biologic drugs in 2025, out of 46 approvals in total. Roughly 66 novel drugs are in the pipeline for FDA approval, including potential blockbusters like Moderna and Merck‘s cancer drug for melanoma, and a next-generation obesity drug from Eli Lilly.

Analysts say AI could also lead to more approvals as companies deploy the software to speed up drug development.

“Biotech is a phenomenal application for artificial intelligence and machine learning,” says Piper Sandler analyst Ted Tenthoff. “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.”

Granted, the industry is recovering from a fallow period. The sector’s last strong performance was during the Covid era when ultra-low interest rates encouraged investment in early-stage drug developers, and mRNA vaccines fueled a revenue surge for companies like Moderna, Pfizer and Biontech.

The sector then went cold as many early-stage companies fizzled. Demand for Covid vaccines evaporated, and surging interest rates put a chill in IPOs and M&A.

The risks haven’t evaporated – this is still a sector whose products take years to develop, resulting in far more failures than successes. But analysts say the outlook is healthier now. While that’s reflected in strong performance and richer valuations, there’s still good reason to invest.