After a stronger 2025, biotechnology entered 2026 on firm footing. Innovation remains robust, valuations are still supportive and investor interest is improving. In a selective market, Candriam focuses on differentiated assets, commercial potential and disciplined portfolio construction.
A stronger backdrop for biotechnology
GLP-1 therapies[1] have drawn broad attention in recent years for their impact on obesity management and cardiovascular risk. Immunotherapies have also attracted significant interest, as they are reshaping cancer treatment and improving survival prospects for many patients. These advances illustrate biotechnology in action: the application of biological science to develop therapies that can redefine standards of care while improving lives and extending survival for millions of patients.
The biotechnology sector spans large pharmaceutical groups as well as small and mid-sized companies at the forefront of therapeutic innovation. It is particularly attractive because innovation in areas of high unmet need can unlock substantial commercial opportunities, aligning meaningful patient impact with long-term return potential.
This breadth of innovation is supported by long-term healthcare megatrends. Aging populations are increasing healthcare utilization, as older individuals typically require more medical care and are more exposed to age-related diseases. At the same time, more sedentary lifestyles are contributing to a rise in chronic conditions. Against that backdrop, biotechnology companies continue to develop therapies that are more effective, safer or easier for patients to use. The result is a broad pipeline of opportunities across multiple therapeutic areas, from oncology and orphan diseases to neurology and cardiovascular disease.
Following a difficult period after the pandemic peak, 2025 marked an important turning point for biotechnology in public markets. Successful launches by newer commercial biotechnology companies helped re-engage investors and reinforced a key point: biotechnology is not only about research potential, but also about profitable growth. The improving backdrop supported performance in 2025.
At the start of 2026, the picture remains constructive, supported by a growing pipeline of drugs and a busy calendar of launches and clinical catalysts that may influence sentiment and stock performance across the sector. We have also gained greater clarity on the potential impact of the new US administration, tariffs, drug pricing and the regulatory backdrop. This is also consistent with Royal Bank of Canada's observation that the share of drug approvals, delays and rejections during the first year of the new administration has not materially changed relative to the previous one[2].
Valuations also remain an important consideration.
Biotechnology is a sector with significant dispersion: clinical, regulatory and commercial success can create clear winners, while setbacks can reset expectations quickly. In that environment, stock selection remains a key driver of performance.
Candriam’s disciplined investment strategy
In this context, our approach is active, research-driven and long only. The portfolio is broadly diversified across market capitalization and therapeutic areas. From a valuation perspective, we see opportunities across the spectrum, but the portfolio is weighted towards two broad groups of companies.
The first includes mid-size companies with established or growing commercial franchises and what we believe are $2 billion-plus commercial opportunities. In our view, these businesses can combine attractive growth, strategic M&A value and a clearer path to profitability.
The second group comprises earlier-stage companies with one or a small number of drug candidates that we believe have a strong probability of clinical success, based on the quality of the asset, the clinical trial design, the market opportunity and the strength of the management team.
Candriam has been managing this strategy for 26 years, drawing on a specialised team that combines financial expertise, scientific specialisation and deep experience in biotechnology research. In our view, biotechnology is one of the areas of equity investing where specialist knowledge can make a meaningful difference, because understanding the science, the competitive landscape and the commercial path is central to assessing risk and opportunity. Constant contact with companies’ management teams, doctors and other external experts further supports this work and helps us assess opportunities with discipline.
2026 outlook: themes in focus
Looking ahead, we see several themes shaping biotechnology investing in 2026.
AI is one of the defining topics of 2026 and is already reshaping multiple sectors. Biotechnology could be one of its most promising areas of application, as AI usage enhances drug discovery and development. In our view, AI has the potential to improve efficiency, reduce development costs and increase the probability of selecting the right drug candidate.
M&A remains an important theme. Large pharmaceutical companies continue to look externally for innovation, and biotechnology remains a key source of differentiated assets. IQVIA noted that 85% of novel drugs submitted for FDA approval in 2024 originated from emerging biopharma[3]. This is reflected in the level of transaction activity. In 2025, we saw 30 deals representing a cumulative value of approximately USD 100 billion[4]. At the same time, another trend is emerging: companies with major commercial products are increasingly able to remain independent for longer and capture more of the long-term value creation themselves. Companies with differentiated late-stage assets or strong launch profiles can therefore become strategically important well before they reach full commercial maturity. Its importance extends beyond potential deal activity, as it also supports valuations across the ecosystem and creates multiple paths to value creation.
China's role in global biotechnology innovation is becoming harder to ignore. In a sector long dominated by the US, China is advancing quickly. The regulatory path to first-in-human dosing is significantly faster, patient enrolment in clinical trials can be completed in roughly half the global average time, and the cost per patient is also materially lower[5]. In the first half of 2025, 46% of all new drug molecules that began human trials originated in Chinese biopharma companies[6]. For investors, this is changing the competitive landscape and expanding the set of innovation sources the market needs to follow.
Within specific therapeutic areas, we see particularly interesting innovation in cardiovascular and metabolic diseases. These are very large treatment areas, with high prevalence and serious consequences when disease is not well controlled. The success of obesity medicines has already shown how biotechnology can reshape standards of care, and we expect further commercial development, including the entry of potent pill formats. We are also monitoring continued innovation in cholesterol and lipid reduction beyond LDL reduction, with clinical catalysts expected around Lp(a), PCSK9 and CETP inhibitors. Likewise, both commercial and clinical developments are being closely watched in fatty liver disease (MASH).
Neuroscience is another area where the investment case is becoming more compelling. Conditions such as Alzheimer's disease carry a substantial human and economic burden. We are seeing renewed focus on drug delivery into the brain and on more targeted therapies. Progress in areas that have long lacked effective innovation can be particularly significant when the science begins to translate into tangible clinical outcomes. Psychedelics have also moved from skepticism to more encouraging clinical signals in psychiatric indications, and we expect further clinical and regulatory developments to help clarify their potential in these underserved conditions.
Oncology also remains a core source of innovation. Over the last decade, the field has advanced towards more targeted therapies addressing specific genetic mutations, across modalities including small molecules, antibodies and cell and gene therapies. Looking ahead, areas such as personalised cancer vaccines continue to attract attention. In immunotherapy, the next generation of drugs such as VEGF x PDL1 could also generate further clinical updates.
Beyond these themes, innovation remains broad across orphan diseases, immunology and other areas where unmet medical need is high and differentiated assets can command strong strategic value.
For professional investors, biotechnology continues to offer access to a differentiated area of growth. The opportunity set remains compelling, but so is the need for selectivity. Our role at Candriam is to stay close to the science, remain disciplined on valuation and focus on companies where innovation can translate into long-term value creation.
All investments in the strategy involves risks.
The main risks associated with investing in the strategy are: risk of capital loss, equity risk, currency risk, liquidity risk, concentration risk, derivative risk, sustainability risk and ESG investment risk.
The risks listed are not exhaustive, and further details on risks are available in regulatory documents.