Biotech is Booming! Some Context and History Would Be Nice...So Here You Go

Since April 1st, 2025, the S&P Biotech Select Index (XBI) is up over 93% through 7/24/2026. Let's talk a little bit about what we have seen over the past few years.

From 2016 to 2019, biotech certainly moved higher, but not significantly over a 4-year period. Then COVID happened, which was arguably the greatest cycle for biotech in its history (think zero % interest rates and a global pandemic where the entire world is funding, accelerating development, and recognizing the value biotech companies provide).

You see that reflected in the XBI when it peaked in February 2021 at nearly $180. It was then a steady collapse as the sector unwound (for many reasons, including a lot of junk companies that never should have received funding to come public).

It then just bounced around for several years before finally breaking out. We find it most interesting that the XBI is at all-time highs now, aside from the COVID period, when the backdrop is so much different. Interest rates are not zero. There is no global pandemic:

1. Advancements in science continues to lead to new drugs in a variety of indications, from large oncology populations down to orphan diseases. Companies are getting better at targeting these populations, and while drug development is still fraught with failure, we see many great successes.

2. M&A is alive and well. There have been numerous deals in 2026 already. It is well known that numerous large pharma blockbusters are coming off patent in the next 5+ years. These companies are all battling to enhance their pipelines to replaced future revenue pressure from generics.

3. Sector quality is better. During COVID, money was pouring into biotech companies and management teams could advance their entire pipelines. This sounds great, but some assets were higher risk and likely shouldn’t have progressed. This took time to clear out. I’d argue small biotech pipeline quality is overall better today than the 2-3 years post COVID.  

Market-cap exposure for the index is worth discussing. XBI is currently ~80% invested in micro- and small-cap biotech stocks (generally under $10B in market cap). Mid-Cap ($10B–$50B market cap) represents about 15%.

The XBI ETF entered 2025 close to its 3-year high before declining sharply early in the year, falling from roughly $90 to below $70 at the April lows — a peak-to-trough decline of over 20%. Biotech then rebounded strongly over the remainder of the year and has continued to shine in 2026.