Biotech sector rebounding after US uncertainty

According to Song, biotech has rebounded since its lows in April of this year.

Company valuations are trading at a 15 percent discount to broader markets on forward price-to-earnings, with secular demand intact for oncology, obesity and chronic diseases. In Song’s view, the biotech industry’s rebound stems from reduced uncertainty under the administration of US President Donald Trump.

Song added that valuations across healthcare are reasonable, noting rotational flows from cooling AI hype.

“I can’t deny that there have been some rotational effects that not just biotech has benefited (from), but healthcare in general,’ he commented. “While AI is an important driver in healthcare, to our view, it certainly is not priced in to the largest extent in many pockets of healthcare.”

Key biotech sector catalysts in 2026

Song sees healthcare’s recovery extending into 2026, with oncology remaining the primary growth engine.

He characterized the current sector resurgence as a durable structural shift being fueled by key developments that present tangible investment opportunities, including anticipated positive clinical trial outcomes, such as those for Revolution Medicines’ (NASDAQ:RVMD) pancreatic cancer drug.

“They have a lead drug that blocks an important pathway called RAS … and they could have a potential breakthrough in pancreatic cancer. They’re running a Phase III trial to demonstrate a potential survival benefit. There could be meaningful progress there,” Song noted. A data readout is expected next year.

Outside oncology, Song flagged high-profile biotech catalysts that could broaden the sector’s 2026 rally.

“Non-peptide oral GLP-1s … are clearly going to be an important data set readout and launch that could occur next year,” he explained, citing Eli Lilly’s (NYSE:LLY) orforglipron, a daily pill that hit Phase III success for type 2 diabetes and obesity in 2025. Approval is expected in 2026, and he believes it could be a potential game changer in obesity and chronic disease treatments, an area dominated by biotech innovators.

Song also sees validation ahead for platform technologies.

A dual-track recovery for biotech

While macro analysts see a broad cyclical recovery in 2026, Song predicts that the market will be defined by a dual-track recovery: a diagnostics-led initial public offering (IPO) surge, and a biopharma M&A environment focused on companies with the clinical validation required to alter the current standard of care.

Renaissance Capital predicts a faster pace for biotech IPOs, with a strong pipeline of companies such as Aktis Oncology, a radiopharma diagnostics firm targeting solid tumors, ready to list for US$100 million.

Additionally, AlphaSense forecasts steady M&A flow as companies rebuild their pipelines in the new year, a trend that Song sees as a structural necessity rather than a simple trend. “It’s an important pillar where Big Pharma needs to replenish their pipelines, and they can’t all do it internally,” he explained.

Consequently, he believes the primary “hunting ground” for these deals is mid-cap territory, where acquiring one or two proven drugs can effectively move the needle for a large pharmaceutical giant.

AI in the biotech sector

Song maintained that AI has not reached full valuation in the sector, and its role is expected to grow, with significant future productivity gains predicted in biopharma, drug discovery, clinical development and healthcare delivery.

“We’ve done some preliminary work that that that suggests there could be … productivity gains in areas like biopharmaceuticals and drug discovery and clinical development,” Song explained, adding that these are long-term projections. He sees a more immediate economic impact in how care is managed.

“Since healthcare is a large part of the US and global economy, and growing quickly in terms of healthcare costs, there are also opportunities for efficiency gains, which could lead to margin and consumer gains,” he noted. This revolution in delivery is already a key focus for his firm’s Tema Oncology ETF (NASDAQ:CANC).

However, life science market analyst Anastasia Bystritskaya warned that valuation and productivity are not synonymous, as high-performing models do not automatically become revenue-producing products. For investors, the real inflection point is operational integration rather than operating as a standalone prototype.

Drive for efficiency is expected to take a practical form in 2026 through what Sergey Jakimov, managing partner at longevity and biotech venture capital firm LongeVC, described as the “doctor in your hand.”

This AI companion manages routine, low-complexity tasks between clinic visits.

LongeVC anticipates that this shift to a regulated digital workflow will allow AI to identify meaningful clinical signals continuously without overburdening primary care teams.

This democratization of discovery creates a new competitive landscape for the hunting ground Song described; if AI-enabled teams can dissect complex pathways without a billion-dollar balance sheet, the traditional R&D model of Big Pharma faces a permanent disruption. In this new era, the innovation gap could be filled by agile players who use technology to act with the scale of a giant, but the speed of a startup.

Investor takeaway

Despite sector momentum, headwinds remain, particularly regarding the stability of clinical research funding.

A November report in JAMA Internal Medicine reveals that 383 clinical trials recently had their grants terminated, disrupting progress for over 74,000 participants. Dr. Gary K. Zammit, founder of Clinilabs, warned these reductions in National Institutes of Health funding risk slowing future commercial development of innovative therapies.

Macroeconomic headwinds, including rising tariffs and early labor market weakness, also present a material challenge.

Ultimately, the 2026 biotech outlook balances promising catalysts with the need for strategic capital deployment and a focus on clinically validated platform technologies, ensuring a durable expansion for the sector.

Will 2025 deliver a Santa Claus Rally?

This year, the S&P 500 fell during the middle of the month following a cooler-than-expected, albeit controversial, inflation report, which raised hopes for additional interest-rate cuts next year.

Despite this downturn, analysts note that a weak start to December has often failed to derail Santa’s run. Since 1950, the S&P 500 finished the Santa Claus rally period higher in 77 percent of years, even after early-month declines. By the end of the week, the index had already regained some ground, and it continued higher in the days leading up to Christmas.

“Barring any major shocks, it will be hard to fight the overwhelmingly positive seasonal period we are entering and the cleaner positioning set-up,” Goldman Sachs’ (NYSE:GS) trading desk team wrote in a note to clients, as reported by Bloomberg. ‘While we don’t necessarily see a dramatic rally, we do think there is room to go up from here into year end.”

Jeffrey Hirsch, editor-in-chief of the Stock Trader’s Almanac and Yale Hirsch’s son, also weighed in on the markets.

“It looks like (the Santa Claus rally) is set up and we can make another high by the end of the year,” he told MarketWatch. Hirsch cited cooler inflation readings and slower job growth in November, which may give the Federal Reserve room to cut interest rates in 2026.

It remains to be seen whether these predictions will come true, or if the market will be weighed down by factors including recent volatility in technology and artificial-intelligence-linked stocks.

Strategies for the Santa Claus rally

Now that the Santa Claus rally seems to be underway, investors interested in joining in have a variety of options, including domestic markets, international diversification or targeted sector plays such as mega-cap tech stocks.

As always, consulting with a financial advisor and conducting thorough research remains essential. While the Santa Claus rally offers potential rewards, market conditions can shift quickly, making flexibility and prudence key to success.