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Healthcare Shares Rebound as Biotech Innovation and Deal Activity Pick Up
Biotech is leading healthcare’s recovery, but boom and bust cycles make patience and careful fund selection essential.
Healthcare shares have rebounded sharply, with biotech leading the way. Over the 12 months covered by the source, the sector gained 23%, compared with 15.7% for the S&P 500 Index. New drug research, company acquisitions and improved earnings expectations are helping explain the shift. But biotech’s history of sharp cycles means the recovery may suit patient investors better than anyone looking for a smooth ride.
The contrast with recent years is stark. After the COVID vaccine launch, a biotech bubble gave way to what Eventide Asset Management co-chief investment officer Finny Kuruvilla calls a four-year “biotech winter.” Higher interest rates in 2022 added pressure because biotech firms often borrow heavily. From its early 2021 peak to its 2025 low, the S&P Biotechnology Select Industry Index fell 63% cumulatively.
Other parts of healthcare faced their own challenges. Concerns about drug prices weighed on pharmaceutical shares, while post-pandemic supply gluts hurt some medical product makers and surging demand for care affected insurers. From early 2022 through mid-2025, the S&P 1500 Health Care Index returned just 1.0% cumulatively. The broad U.S. stock market gained 43% over the same stretch.
What is lifting biotech and related businesses
The current recovery rests on several forces. Drug developers have a wider range of scientific tools, and some recent clinical results have raised expectations for what treatments may achieve. Biotech firms and businesses supplying their research equipment look especially well positioned, alongside selected pharmaceutical companies.
Two cancer treatments illustrate the potential. Revolution Medicines’ pancreatic cancer pill Rasonque was recently approved. In the data cited by the source, patients taking it had an overall survival period of 13.2 months, more than twice that of patients receiving chemotherapy, the standard treatment. The pill targets proteins that help tumors grow. Kuruvilla described the results as “astonishing.”
Moderna and Merck have also reported results for a skin cancer treatment combination. Moderna’s shot is made for each patient using tumor tissue, with the aim of training the immune system to recognize and fight cancer cells. It is given alongside Merck’s Keytruda immunotherapy. In early trials, patients receiving both had a 49% lower chance of recurrence or death than those taking Keytruda alone.
Company dealmaking is another source of support. Drugmakers face a major loss of exclusive rights to medicines from 2028 through 2032, according to T. Rowe Price Health ETF manager Sal Rais. When exclusivity ends, competing firms can sell generic versions, which can sharply reduce the original maker’s revenue. Acquiring biotech companies is one way for larger drugmakers to replenish their development pipelines.
The source reports that pharmaceutical companies made 26 deals in 2025, while biotech acquisitions had already passed 50 by midyear 2026. Eli Lilly acquired more businesses in the first half of 2026 than throughout the prior year. Chief executive David Ricks cautioned that “not all of these bets will pay off,” though successful acquisitions could support growth into the 2030s.
Some U.S. and European drug developers are also looking to China for potential treatments. Kuruvilla describes the country as a “phenomenal superpower” in drug development. In 2024, U.S. biotech firm Kailera Therapeutics licensed rights outside Greater China to develop, make and market a weight-loss drug from Jiangsu Hengrui Pharmaceuticals. Kailera later used that asset to raise $625 million in a public offering in April 2026.
Earnings forecasts reflect the improved mood. Analysts expect healthcare earnings to grow 21.9% year over year in 2027, according to State Street Investment Management strategist Matthew Bartolini. That would trail only technology among sectors, and forecasts have recently moved higher. Biotech earnings are projected to rise 47.7%, compared with 15.1% for the S&P 500.
Higher borrowing costs could still weigh on those projections. Bartolini says a strong economy and rising earnings forecasts may help offset that pressure. Kuruvilla adds that firms hurt by the last rate increase cycle may now have cash to cover three to five years, compared with roughly six months previously. Those buffers could help, while the pace of drug research remains another potential support.
Six funds with different levels of focus
Biotech can move through boom and bust periods lasting four to five years, with deep declines as well as rapid gains. Investors considering the area should account for that volatility and their time horizon. Developing a drug can take more than a decade, and a Morgan Stanley report cited in the source says about 90% of therapies under development fail to reach the market. Artificial intelligence could cut development timelines in half, but that possibility does not remove the risk of failure.
The funds below offer different ways to approach the industry. The source’s fund returns and other data are through September 30 unless otherwise indicated. Past performance figures describe the periods given; they don’t establish what a fund will return in the future.
State Street SPDR S&P Biotech ETF (XBI) tracks the S&P Biotechnology Select Industry Index and holds 147 biotech stocks. Small companies account for 75% of assets, and midsize firms for 17%. That exposure reaches many early-stage innovators, which may also attract acquisition interest, but it brings concentrated exposure to smaller, more volatile businesses. The fund’s 12-month return was 58%.
Virtus Biotech ETF (BBP) follows an index of 65 equally weighted, mostly small and midsize biotech companies, each with at least one therapy approved by the FDA. Moderna, Iovance Biotherapeutics and Omeros were among its largest holdings at the last report. The fund has held up better than peers during declining markets. Its 10-year annualized return was 12.2%, nearly three percentage points a year above the S&P Biotechnology Select Industry Index over that period.
Fidelity Select Biotechnology Portfolio (FBIOX) is actively managed by Rajiv Kaul, who has led it for nearly 21 years and has experienced at least four biotech cycles. It outpaced the S&P Biotechnology Select Industry Index over the past five, 10, 15 and 20 years. More than half of the portfolio is in small companies, with midsize and large firms making up the rest in roughly equal shares. AbbVie, Krystal Biotech and Amgen were top holdings at the last report.
Funds with broader healthcare exposure
Three active funds featured by the source also invest beyond biotech. Their wider mix has brought less extreme volatility than pure biotech funds, though each still has substantial exposure to the industry.
T. Rowe Price Health ETF (TMED) began in June 2025 and gained 27.9% over the 12 months cited. Rais manages it with nine analysts. Biotech represents 37% of the portfolio and life science tools 19%, with investments elsewhere in healthcare as well. Rais says the team focuses on scientific research and whether a drug offers a distinct benefit. One example is Alnylam Pharmaceuticals’ treatment for cardiac TTR, which aims to stop production of the toxic protein that causes the condition and significantly reduce the risk of death.
Eventide Healthcare & Life Sciences (ETNHX) holds biotech and pharmaceutical companies equal to 79% of assets. Equipment and diagnostic businesses account for another 9%, and medical technology companies for 6.3%. Its 62 holdings are mostly small and midsize firms. The fund returned 34.4% over the past 12 months. Guardant Health, up 185%, and Revolution Medicines, up 340%, contributed to that result.
Eventide screens companies for environmental and social standards before its research team evaluates them. Kuruvilla says the firm seeks businesses that promote human flourishing. Eventide Asset Management allocates 1% of the assets it manages to socially impactful investments.
Fidelity Select Health Care Portfolio (FSPHX) gained 31.6% over the past 12 months and is included in Kiplinger’s list of actively managed, no-load funds. Manager Eddie Yoon invests across healthcare and company sizes, combining businesses with stable earnings and firms developing new products. More than half of holdings are small or midsize. Oruka Therapeutics, up 333%, and Merck, up 77%, were among the portfolio’s strongest performers over that period.
Yoon has favored biotech since 2025, citing clinical results and company fundamentals. He also sees potential for life science tools as technology firms apply artificial intelligence to healthcare and drug discovery, particularly in 2027 and 2028. His view is cautiously optimistic: healthcare’s fundamentals appear to be improving, but the sector’s difficult stretch is recent enough to make patience and measured expectations sensible.
For anyone weighing these funds, the practical choice is how much biotech exposure fits their ability to tolerate steep swings and wait through long development cycles. A broad healthcare fund spreads holdings across more types of companies; a focused biotech fund ties results more closely to drug research and its uncertain outcomes.
