Buoyed by attractive valuations, a resurgence in Business Development (BD) and IPO activity, and a dense calendar of core catalysts, the biopharmaceutical sector is demonstrating robust growth potential for 2026. Although the industry's overall revenue and earnings growth expectations are slightly below the market average, its low-risk profile and substantial pipeline optionality value position it as an ideal alternative for investors seeking to balance their tech stock allocations.
According to market intelligence, a research report released on the 6th by Citi analyst Jarwei Fang's team noted that the US biopharmaceutical sector performed admirably in 2025, successfully breaking a two-year slump. Specifically, the Nasdaq Biotechnology Index (NBI) surged 32%, and the S&P Pharmaceuticals Index (DRG) rose 20%, both outperforming the S&P 500's 17% gain. As policy uncertainties gradually dissipated in the second half of 2025, market sentiment has pivoted from defensive to offensive.
Currently, the forward price-to-earnings ratios of large-cap pharmaceutical stocks remain below those of the S&P 500, indicating room for valuation recovery. Citi anticipates that potential further interest rate cuts by the Federal Reserve in 2026 could provide a favorable macroeconomic tailwind for the biopharma sector. High-growth leaders such as Eli Lilly, Gilead, and Vertex are particularly well-positioned to continue outperforming the broader market, driven by their strong commercial execution capabilities.
The growth narrative for the biopharmaceutical industry is undergoing a profound transformation. The market penetration of GLP-1 drugs is spilling over from diabetes and obesity into cardiovascular and neurological domains; the application of Artificial Intelligence in drug discovery and clinical trial design is entering a phase of tangible returns; coupled with the reshaping of distribution channels by Direct-to-Patient (DTP) models, the overall profitability quality and innovation conversion efficiency of the industry are being significantly enhanced.
Bidding farewell to policy headwinds, the sector is welcoming a return to fundamentals. For the biopharmaceutical industry, 2025 was a year of stark contrasts. In the first half, plagued by concerns over drug price negotiations under the Inflation Reduction Act (IRA), Most Favored Nation (MFN) pricing threats, and tariff anxieties, capital heavily favored the technology sector, putting pressure on pharmaceutical stocks. However, a turning point emerged in September when Pfizer率先 signed a pricing agreement with the Trump administration, followed by several other pharmaceutical companies including Amgen, Gilead, and Merck, effectively eliminating the most significant policy uncertainty that had haunted the industry.
Entering 2026, Citi believes the regulatory environment will become more temperate. Although price reductions for the first ten drugs under the IRA took effect on January 1st, and price negotiations for drugs like Novo Nordisk's Ozempic are scheduled for 2027, the market has largely priced in these expectations. More importantly, a notable rebound in FDA approval efficiency—evidenced by a strong recovery in new drug approvals in 2025—has paved the way for the launch of innovative therapies.
Against this backdrop, Citi is optimistic about biopharma as an "alternative trade" to tech stocks. Large pharmaceutical companies currently trade at a discount to the S&P 500 on a P/E basis, and with declining interest rates reducing financing costs for small and mid-cap biotech firms, the entire sector has room for valuation expansion.
The GLP-1 Market: Spilling Over from "Weight Loss" to "Panacea" If 2025 was the year GLP-1 drugs cemented their status as "miracle weight-loss drugs," then 2026 is poised to be the year their application boundaries expand dramatically. The Citi report highlights two profound shifts occurring in the GLP-1 receptor agonist market: The first is the broad spillover into new indications. Beyond solidifying their dominance in diabetes and obesity, GLP-1 drugs are rapidly penetrating cardiovascular disease, kidney disease, and even neuropsychiatric and neurodegenerative disorders. Although Novo Nordisk's oral semaglutide failed to meet the primary endpoint in an Alzheimer's Disease (AD) trial, positive biomarker data signals suggest the mechanism still holds potential in neurological diseases. The second is a major breakthrough on the reimbursement front. Medicare Part D is expected to formally expand its coverage of GLP-1 drugs as early as April 2026. This would grant over 20 million new beneficiaries access with insurance coverage, and while this comes with price concessions, the volume-for-price logic is likely to significantly boost the peak sales forecasts for giants like Eli Lilly and Novo Nordisk. The most anticipated catalyst is the potential approval and launch (expected in Q2 2026) of Eli Lilly's oral GLP-1 drug, orforglipron. As a once-daily oral medication, orforglipron could overcome the adherence challenges associated with injectables and challenge Novo Nordisk's competing products with its advantage of no dietary restrictions. Citi predicts the drug could achieve first-year sales of $1.8 billion, potentially exceeding Wall Street consensus estimates.
AI Empowerment: From Proof-of-Concept to Real Returns In the biopharmaceutical realm, Artificial Intelligence (AI) is no longer merely an investor buzzword but is translating into tangible efficiencies and returns. In 2025, the application of AI within the industry shifted from early experimentation to generating quantifiable benefits. The Citi report cites several examples demonstrating AI's value: Bristol Myers Squibb utilized AI to shorten clinical trial timelines by nearly three years and save approximately $250 million in supply chain costs; Novartis optimized biologics manufacturing processes with AI, saving $10 to $15 million per plant annually; Novo Nordisk's generative AI platform, "NovoScribe," reduced the time required to draft clinical study reports by about 90%. Looking ahead to 2026, AI is expected to penetrate deeper into the core stages of drug R&D. Eli Lilly's collaboration with NVIDIA to build an "AI factory" with an investment exceeding $1 billion signals the industry's move towards an era of "self-driving labs." Such systems, capable of autonomously designing and running experiments, hold the promise of dramatically accelerating the pace of new drug discovery.
2026 Trading Strategy: Embracing Growth and Catalysts Citi's recommendations for large-cap stocks remain focused on growth-oriented companies. On an individual stock basis, Eli Lilly is viewed as the top pick, primarily driven by continued GLP-1 penetration and the launch of orforglipron; Vertex is favored due to the consolidation of its cystic fibrosis pipeline and breakthroughs in its kidney programs; Gilead is positioned for growth through the broad rollout of its HIV drug, Yeztugo, and its oncology pipeline. Within the small and mid-cap biotech space, Citi is focusing on companies with significant de-risking catalysts, including Apogee (52-week data for APG777 in atopic dermatitis), Arcellx (regulatory submission for anito-cel), and NewAmsterdam (Phase 3 data for obicetrapib in the cardiovascular domain).