This year's biotech laggards primed for 2026 recovery, says Goldman Sachs' Richter

Discounting: Biotech & Pharma Outlook to 2026

Key Concepts:

• Trump Rx: Refers to the Trump administration’s efforts to lower drug prices.
• Earnings Revisions: Adjustments made to previously forecasted company earnings, indicating investor sentiment and performance expectations.
• M&A (Mergers & Acquisitions): The consolidation of companies through mergers or acquisitions, often driven by market conditions and strategic opportunities.
• Biopharma: A portmanteau of "biology" and "pharmaceuticals," referring to the industry focused on developing drugs from biological sources.
• Respiratory Vaccine Business: Focuses on vaccines targeting respiratory illnesses like influenza and bird flu.
• Cancer Vaccine Business: Focuses on vaccines designed to prevent or treat cancer.
• Obesity Trade: Investment opportunities related to the growing market for obesity treatments.
• Cardiovascular Disease: Diseases related to the heart and blood vessels.

I. Recent Developments & Market Reactions

Nine of the largest pharmaceutical companies (Merck, Amgen, Gilead, among others) recently reached an agreement with President Trump to lower drug prices. Surprisingly, the stocks of these companies increased in value following the announcement. Salveen Richter of Goldman Sachs Research attributes this to the removal of uncertainty surrounding potential government intervention. The market now has clarity, allowing for accurate pricing and, in some cases, potential revenue gains by aligning ex-U.S. prices with U.S. prices. Further deals are anticipated, extending to smaller biotech and pharma companies, with the overall impact expected to be visible by 2026.

II. Vaccine Market Dynamics & Moderna

Reports indicate potential changes to childhood vaccine schedules under a possible RFK administration. Simultaneously, Moderna’s stock rose 9% on news of funding for a bird flu vaccine. Richter acknowledges uncertainty within the vaccine sector. However, she highlights Moderna’s diversification, noting its significant investment in cancer vaccine development alongside its respiratory vaccine business. The uncertainty surrounding regulatory frameworks, particularly regarding vaccines, has already been partially factored into stock valuations.

III. The “Trifecta” Driving Biotech Recovery

Richter identifies a “trifecta” of factors contributing to the biotech sector’s recovery after nearly three years of negative earnings revisions:

1. Stabilizing Earnings: Earnings revisions have stabilized and are potentially trending upwards.
2. Drug Pricing Clarity: The agreements with the Trump administration provide certainty regarding drug pricing regulations.
3. Rotation from AI: A shift in investor focus away from the dominant Artificial Intelligence (AI) trade is directing capital towards other sectors, including biopharma.

This combination allows companies to focus on executing their business models for 2026. Richter also predicts a secondary wave of Mergers & Acquisitions (M&A) activity within the sector.

IV. Investment Picks for 2026

Based on her analysis, Richter recommends the following:

• Large Cap:
  • Buy: Amgen and Regeneron – expected to show upside in performance.
  • Lagging/Underperform: Biogen – anticipated to underperform relative to peers.
• Mid Cap: Focus on innovative companies, particularly those involved in cardiovascular disease and the evolving obesity treatment market.

V. Regulatory Landscape & Future Outlook

While acknowledging remaining uncertainties in the regulatory environment, particularly concerning vaccines, Richter believes the market has already begun to account for these risks. The overall outlook for the biopharma sector is positive, driven by the stabilization of earnings, clarity on drug pricing, and a shift in investor sentiment. The potential for M&A activity further strengthens the sector’s prospects.

Notable Quote:

“We had after almost three years of negative earnings revisions that stabilized. If anything, you’re starting to see potential upside for this group as you head to 2026.” – Salveen Richter, Goldman Sachs Research.

Conclusion:

The biopharma sector is experiencing a recovery fueled by a confluence of factors, including regulatory clarity, stabilizing earnings, and shifting investor preferences. While uncertainties remain, particularly in the vaccine space, the overall outlook is optimistic, with potential for growth and consolidation through M&A activity. Amgen and Regeneron are highlighted as strong large-cap investment opportunities, while innovative mid-cap companies focused on cardiovascular disease and obesity treatments are also recommended for consideration.