A tidal wave of innovation in biotechnology is improving patient outcomes, transforming the industry's prospects, and lifting long-suffering biotech shares. Spurred by therapeutic breakthroughs and new-product launches, investors have bid up the iShares Biotechnology exchange-traded fund, or IBB, by 24% this year, while the State Street SPDR S&P Biotech ETF, or XBI, has risen 28%, more than twice the gain of the S&P 500.

Large pharmaceutical companies are also paying attention. They have been striking licensing deals with smaller biotechs and scooping up whole companies in a bid to rebuild their pipelines and replace blockbuster drugs facing patent expirations.

The marriage of science and money fueling today's biotech renaissance could be long lasting, and the application of artificial intelligence to drug discovery and analysis promises further rewards for the industry and investors. So say the members of our 2026 Healthcare Roundtable, who met with Barron's writers and editors on Sept. 11 on Zoom to discuss the industry's prospects and share their favorite investment ideas-16, in all.

This year's panelists include Nilesh Kumar, head of biotech private investments at Wellington Management; Evan McCulloch, senior vice president and portfolio manager at Franklin Templeton and manager of the Franklin Biotechnology Discovery fund; Salveen Richter, managing director, global investment research, at Goldman Sachs; and David Risinger, senior managing director and senior research analyst at Leerink Partners.

An edited version of the conversation follows.

Barron's: Biotech stocks have broken out this year after a multiyear slump. What has drawn investors back into the sector, and will they stay?

David Risinger: It has been a good year, but there has been a lot of volatility. The most substantial period of inflows occurred in the third week of August-the week in which Moderna and Merck unveiled promising initial results in a late-stage study of their personalized mRNA cancer vaccine for melanoma, which helped to spike interest in the sector.

From here, much will depend on how technology stocks perform. Artificial-intelligence labs Anthropic and OpenAI have filed confidentially with the Securities and Exchange Commission to go public. I fear interest in those stocks and other tech stocks could suck some money out of healthcare, or at least preclude a substantial rotation into healthcare in the near term. Certainly, the evolution of the tech sector has major implications for biopharma stocks.

Investors are looking for opportunities in healthcare, but there has been a step-up in many of the larger biopharma stocks, and valuations aren't as attractive as they were a year ago. Many stocks have benefited from rising earnings expectations, which have fueled strong performance. Now it is tougher to find bargains among the large-caps.

Is there a particular metric, such as positive trial readouts or merger activity, that has served as a catalyst to draw investors into biotech?

Salveen Richter: Let me contextualize this year's recovery. It follows three consecutive years of underperformance by large-cap biopharma and biotech stocks. Healthcare was trading at a near-record discount to the S&P 500 just 12 months ago, with the XLV [State Street Health Care Select Sector SPDR ETF] at about a 30% discount to the S&P 500 on a price-to-earnings basis. That discount has since narrowed, and the gap could close further. Valuations have been driven higher by greater clarity from a drug-pricing policy perspective on the back of large-cap biopharma's company-specific deals with the administration in late 2025 and early '26, earnings strength, and mergers and acquisitions. I should also mention catalysts such as positive drug trial results. The innovation trade has been strong, particularly in the field of oncology.

But, as David said, we'll have to see how the rotational dynamics between tech and healthcare play out. We should realize that the macro backdrop is playing a dominant role in how these sectors trade.

Nilesh, you're our emissary from the venture-capital market. What is happening with biotech funding?

Nilesh Kumar: We are mid- to late-stage private investors. In 2020 and '21, when the XBI was last at high levels, my leaning was negative. Companies in the private market were a lot more speculative and more expensive compared with today. I now lean more positive because we are seeing a lot of good companies with articulated assets that we can understand or perform due diligence around.

A lot more asset-centric companies are being funded, and quite a number of these tend to be assets spun out from Chinese biotech companies. Interestingly, a lot of them are choosing to come public through reverse mergers, and we have been part of a few of those.

The earlier funding part is what worries me. Perhaps some of the focus on asset plays-you take an asset, create a company, and somehow take it public quickly-is crowding out what I would call big-ideas companies.

Can you elaborate on your concerns?

Kumar: Think about it this way. Many drug classes generally have three or four follower drugs with differentiated qualities. Perhaps the first one isn't always the best. That is how innovation has happened in our industry, and it is what China is doing on a very large scale. We see a lot of company formation around those assets. However, we should continue to also focus on novel biology and big ideas, not just permutations of existing targets.

The biopharma industry has seen dozens of deals this year, including mergers, acquisitions, and licensing deals, which have excited investors. Evan, will M&A activity remain strong?

Evan McCulloch: Yes. Large pharma companies need to augment their internal pipelines with external innovation to meet their revenue-growth objectives. They typically buy later-stage biotech companies after clinical proof-of-concept has been established, and in many cases, after a drug has won FDA [Food and Drug Administration] approval. They will let other investors take the clinical risk and keep the research and development expenses off their own income statements and then use their balance sheets to buy future growth. Most of the large pharma companies have major patent expirations between now and 2032, and they can use acquisitions to smooth out those patent cliffs.

Our investment strategy in a portion of our fund is to fund companies through clinical-stage trials. We view it as financing a product until either its commercial launch or acquisition. There are certainly small companies that can commercialize successfully, but for the most part, we would rather see those products layered into the well-oiled commercial machines of large pharma. We are happy to take a one-day stock-price boost on news of an acquisition, but we will recycle proceeds back into earlier-stage companies and repeat the whole cycle.

M&A is a critical component of a well-functioning ecosystem, and it can be a win-win for the company getting acquired, the large pharma acquirer, and investors.

How does a company like Revolution Medicines fit into this broader landscape? It won FDA approval in August for a pill to treat pancreatic cancer-a milestone for the company and patients.

McCulloch: Revolution Medicines probably has transcended the M&A cycle due to its size. It has a $40 billion market cap. There have been rumors about an acquisition, but it may be too large.

What are some possible acquisition targets among biotechs?

McCulloch: Big pharma companies need products big enough to move the needle. From a therapeutic standpoint, we are probably talking about oncology and immunology, or the cardiovascular or neuropsychology areas.

Then there are large companies rolling up treatments for rare diseases, such as Sanofi or even AstraZeneca. Beyond the large pharma companies, some of the larger biotech companies, and even midsize pharma and biotechs, are starting to make acquisitions. Neurocrine Biosciences said in April it would buy Soleno Therapeutics. [The deal closed in May.] We expect continued M&A in this sphere.

Last year, our healthcare roundtable focused on drug-pricing changes and other regulatory matters. This year has been quieter on the regulatory front. As you look to the midterm elections and beyond, are there significant policy changes coming that could affect the biopharma sector?

Richter: Heading into the U.S. midterms, the implications seem limited for biopharma. First, prediction markets are pointing to the likelihood of a divided government, and second, recent policy changes have been more about executive action rather than legislative action. There has been a downshift in conversations about biopharma-specific risks.

Drug-pricing outcomes stemming from Most Favored Nation [a government agreement with pharmaceutical companies to lower certain prescription-drug prices to the lowest prices paid in a basket of developed countries] and the Inflation Reduction Act are much better understood now relative to the policy and reimbursement uncertainty that persists in other areas of healthcare.

Investors continue to monitor issues including Medicaid funding and eligibility changes, Medicare reimbursement updates, reform of the 340B drug-pricing program [affecting healthcare providers serving low-income and uninsured patients], site-of-care policies, and evolving healthcare utilization trends. All can have significant implications for providers, insurers, and healthcare services companies.

I would highlight that drug-pricing containment efforts are largely bipartisan, despite some disagreements in implementation methods. Also, PBM [pharmacy benefit manager] reform is a focus in both political parties.

One interesting focus is the coming PDUFA [Prescription Drug User Fee Act] reauthorization, which is considered must-pass legislation, making it a prime vehicle for China-related policy provisions. Lawmakers may leverage this renewal to attach measures addressing U.S.-China biotechnology competition, including potential restrictions on foreign collaborations and clinical data, enhanced supply-chain disclosure requirements, and initiatives to bolster domestic biotechnology capabilities.

What we are watching next is the Treasury Department's NPRM [Notice of Proposed Rulemaking], to be released in the near term. It will potentially clarify whether outbound biotechnology investment in Chinese entities will be included in formal screening under the COINS [Comprehensive Outbound Investment National Security] Act.

On a related note, BINSA [the Biotech Investment National Security Act] is a bipartisan proposal that would amend the COINS Act to formally add biotechnology-specifically, pharmaceutical and biological product development-to the list of sectors subject to federal outbound screening, reflecting growing concerns about strategic competition in biotechnology.

Kumar: Disease is global, and a patient shouldn't care where a drug was developed. But wouldn't restrictions on U.S. transactions in China benefit drug developers in other markets, such as Europe and Japan?

Richter: These are questions being studied. The National Security Commission on Emerging Biotechnology issued its report last year, which included 49 recommendations directed toward making biotechnology a strategic national priority, accelerating U.S. products to market, maximizing biotechnology for national defense, out-innovating competitors, developing the workforce, and maximizing partners and allies.

Risinger: It is critical that the U.S. accelerates innovation in medical science. Trying to block China's innovation isn't going to succeed for many reasons. To Nilesh's point, there is a risk that China entities would simply partner with non-U.S. entities to advance their innovation. I hope that leaders in Washington understand the urgent need to support U.S. biopharma innovation in a constructive manner, rather than trying to counter it in a manner that may be ineffective and accelerate innovation in China.

Big Pharma has committed hundreds of billions of dollars to licensing deals with Chinese biotech firms. Wouldn't they be pretty loud stakeholders, at least in discussions about continuing to allow such licensing?

Risinger: I'm glad you mentioned that. Pfizer's CEO, Albert Bourla, has argued that it makes sense for Pfizer and other large pharmaceutical companies to be able to access innovation wherever it is. The industry needs to continue to advocate for that. It could also do a better job of vocally supporting scientists and academia in the U.S. The technology industry has done an amazing job of engendering support in Washington.

How should investors think about the debate around U.S. access to innovative biotech in China?

McCulloch: We have been incredibly impressed with the China biotech sector. China has demonstrated an ability to discover new drugs and advance them exponentially to human proof of concept. But so far, the China companies have been reluctant to run global Phase 3 trials and commercialize their drugs in the U.S. This is probably due to the large amount of capital required, the risk involved, and the complexity of marketing drugs here, given the U.S. reimbursement system.

So, while it may be concerning that 10 or 20 molecules are pursuing the same disease target, late-stage development will still need to be done by large, multinational companies, and only best-in-class compounds will be picked up. We think fears that 10 or 20 similar drugs will flood the market and collapse prices are way overdone.

At the same time, the U.S. biopharma industry is adjusting to protect its innovation. Companies are more reluctant to share information about their early-stage pipelines. Merck historically hasn't disclosed its Phase 1 pipeline. Now, Eli Lilly has announced it isn't going to share information about its Phase 1 pipeline. We are hearing the same thing from later-stage biotech companies.

We see the influx of compounds and innovation from the Chinese biotechnology sector as a positive for larger biopharma companies, given that they have the opportunity to select the best molecules for in-licensing and bolstering their pipelines. But I feel Nilesh's pain here. When we look at a company with an early-stage compound, we have to be mindful that there is a pipeline in China that probably has other compounds sitting on the same target. It makes the due-diligence process more complicated, but it doesn't decrease the value of late-phase compounds, especially if they are best-in-class.

Lest this become the China Biotech Roundtable, let's pivot to what Salveen called the innovation trade. Along those lines, on which coming drug-trial readouts are you focused most closely?

Risinger: One of the biggest readouts in the sector will be results from Librexia-AF, a Phase 3 trial evaluating milvexian, a novel blood thinner from Bristol Myers Squibb and Johnson & Johnson. Milvexian is being tested for stroke and systemic embolism prevention in patients with atrial fibrillation against Eliquis, which has a revenue run rate of about $15 billion. The trial results will read out in the first quarter of 2027 and have major implications for Bristol's growth prospects.

Richter: This has been a difficult year for trial outcomes in the cardiovascular market. Three major clinical trials had disappointing results. In oncology, however, we have seen some nice wins, including Revolution Medicines' success in pancreatic cancer and the initial success of the Moderna and Merck mRNA cancer vaccine for melanoma, which we discussed. We will see full data on the vaccine trial at a coming medical meeting.

One of the most closely watched events this year will be Summit Therapeutics' Phase 3 HARMONi-3 trial results for ivonescimab, a cancer treatment the company in-licensed from China's Akeso. The trial is evaluating ivonescimab in combination with chemotherapy versus Merck's Keytruda plus chemotherapy [the global standard of care] in lung cancer. Summit is expected to share final progression-free survival and interim overall survival data from the squamous cohort of the study in the second half of 2026, followed by progression-free survival data from the non-squamous cohort in the first half of 2027. [Squamous refers to type of cell.]

What do the cardiology failures mean for the future of the cardiology space?

Richter: Drug development for treatment of cardiovascular disease is difficult now for three reasons. First, you're running trials in some cases involving earlier-stage patients, which may make it harder to see a response than in later-stage patients. Second, the concomitant use of other medications, such as SGLT2 inhibitors [to lower blood sugar] and GLP-1s are confounding the ability to predict the benefits of the drugs being studied.

Third, in a case like Novartis' Phase 3 pelacarsen trial, we knew the drug would lower levels of Lp(a) [Lipoprotein(a), linked to cardiovascular disease], but we didn't know if that would translate into a reduction in heart attacks and strokes. [The drug didn't reduce the risk of cardiovascular events.] Next, we will look to the results of Amgen's trial, expected to be reported in 2028, to see if its drug [olpasiran] is getting a deeper knockdown of Lp(a). The trial design is different, and trial design matters.

McCulloch: Drug development in cardiovascular disease will continue. The markets are large. This is an attractive area that still has a lot of unmet medical need. Results of Novo Nordisk's Zeus trial [to evaluate whether the company's anti-inflammatory drug, ziltivekimab, could reduce major adverse cardiovascular events] and Novartis' Horizon study [of pelacarsen] were disappointments, and came in the wake of weakness of some smaller stocks in the area. But large pharma is always going to look for big markets, and small biotech will help deliver on that mission.

Returning to oncology, what is the outlook for mRNA cancer vaccines?

Richter: Moderna and partner Merck will have Phase 2 data on their cancer vaccine in renal cell carcinoma by the end of this year or early next year. They are looking at disease-free survival. If the study is positive, there will be a belief that the drug works beyond just melanoma and now renal cell carcinoma, with a readthrough to lung cancer and beyond. [Moderna announced after the roundtable that it will present Phase 3 data for intismeran in adjuvant melanoma at the European Society for Medical Oncology, or ESMO Congress, to be held in Madrid in late October.] Wall Street is pricing in revenue for Merck and Moderna that goes beyond just the treatment of melanoma.

How do you scale personalized cancer vaccines over millions of patients, and what will the pricing be? This would be a new kind of manufacturing for the industry.

McCulloch: They can absolutely scale. We have seen personalized products in other areas. You can look to the CAR-T space; mRNA is more scalable than autologous CAR-T engineered T-Cell therapies.

Pricing will likely mirror what we are seeing in the CAR-T space: the low- to mid-hundreds of thousands of dollars per treatment.

To reiterate Salveen's point, these vaccines were most likely to work in melanoma, but Moderna and Merck also did some smart things. In their melanoma trial, they chose the adjuvant setting, where the whole tumor was excised and specific antigens could be selected, as opposed to the metastatic setting, where you have only a small biopsy to work with. The tumor burden is lower, as well, because the tumor has been resected [surgically removed from the body].

The positive trial result was extraordinary and unexpected, which is why there was an extreme stock reaction. [Moderna shares rose nearly 177% and Merck shares gained 12% on Aug. 19, after trial results were released showing positive results against melanoma.] But also, to Salveen's point, the prospects for positive results against other cancers are priced in. Still, this is an exciting development for patients, and a new modality. And it offers more evidence of how this sector benefits from true innovation.

CAR-T cell therapies are being probed not only in cancer but autoimmune diseases. What is the outlook now that Novartis and Bristol Myers have paused their CAR-T autoimmune trials after patient deaths in Novartis' case and safety concerns in Bristol Myers'?

McCulloch: CAR-T therapies have shown extraordinary efficacy in treating multiple myeloma. They have demonstrated efficacy in lupus and other autoimmune disorders, but they have some safety issues, so we have to make sure the benefits are justified by the risks. The sector is exploring ways to improve safety, but we need to see if efficacy can be maintained. Off-the-shelf approaches simplify administration.

A next-generation technology, in vivo CAR-T, has been a hot area in biotech-so hot that private companies in the field haven't been able to come public because they have been acquired before doing so. AbbVie's acquisition of Capstan Therapeutics in 2025 was the biggest deal in the space. Lilly's acquisition of Kelonia Therapeutics is another example. There is a lot of debate about whether a one-and-done approach like CAR-T, or a chronic treatment with T-Cell engagers [antibodies that link a patient's T-Cells to cancer cells to destroy them] is better. The data will answer this question over time.

Risinger: The safety of these therapies in severe autoimmune disease will be critical. That will dictate how broadly they can be adopted, especially beyond major academic medical centers.

What are some companies to watch in the in vivo CAR-T space?

Risinger: Among companies I cover, we will be watching AbbVie, Bristol, and Lilly in coming years, and there are several others.

David, which biopharma stocks interest you most this year?

Risinger: I cover several mid-cap companies whose stocks have lots of upside potential. Oruka Therapeutics is developing differentiated drugs for dermatological conditions. Its lead asset, ORKA-001, is an ultralong-acting IL-23 inhibitor being developed initially for psoriasis. [ORKA-001 targets a specific sub-unit of interleukin-23, a protein messenger in the body that signals the immune system to start and maintain inflammation.]

We expect compelling week-28 [trial] results for this drug at the end of September, and we're also looking forward to data in December that will tell us what percentage of patients was able to maintain skin clearance through week 52. That's with just an initial induction dose, followed by a single dose a month later. We see peak sales potential for Oruka's portfolio of well above $5 billion, and with its market cap at about $6 billion, it is highly attractive.

Another company I would call out is Vaxcyte, which has megablockbuster revenue potential for its lead vaccine candidate, VAX-31. By the end of October, the company is going to issue results for its first Phase 3 trial of VAX-31 in adults. This is a pneumococcal conjugate vaccine that could sweep the market, becoming the leading vaccine for preventing pneumococcal disease in adults and taking share from Pfizer's Prevnar and Merck's Capvaxive. We also think the Phase 2 results in infants will be positive. Those will be issued about six months later, by the middle of 2027.

Are you also looking at small-caps?

Risinger: Yes. Scribe Therapeutics recently came public and is benefiting from a transition in investors' mind-set toward genetic medicine. The company is developing two platforms: One is an epigenetic silencer platform, and the second is a gene-editing platform. Scribe has partnered with Eli Lilly and Sanofi, both of which have paid the company milestones as they have made progress with the Scribe technology.

There will be initial Phase 1 data in the first half of next year for Scribe's lead agent for lowering LDL cholesterol, STX-1150, an epigenetic silencing therapy. [STX-1150 shuts down a gene in the liver that regulates cholesterol levels without changing the genetic code.] We hope Scribe will sign additional partnerships that will further validate its genetic medicine platform. Tech investors looking for transformational potential in biopharma could be increasingly attracted to a company like this, which could broaden its ownership beyond healthcare investors.

Are you following any other early-stage or emerging biopharmas?

Risinger: Latigo Biotherapeutics is developing novel pain medicines, following on the heels of Vertex, which sells a drug called Journavx. Latigo's lead candidate appears to be more effective than Journavx based on cross-trial comparisons, and Latigo will generate more trial results in the second half of next year. We're excited about the potential for novel non-opioids, and Latigo has multiple candidates in development.

Finally, First Tracks Biotherapeutics has a CD-122 antagonist being developed in multiple indications. [The candidate, ANB033, blocks a protein receptor to stop the survival and growth of destructive immune cells.] We're excited about two coming Phase 1b readouts: first, a gluten-challenge trial in the fourth quarter, followed by a trial evaluating celiac-symptom improvement in the first quarter of next year.

Evan, tell us about the Franklin Biotech Discovery fund's investment approach, and where you see bargains in biotech now.

McCulloch: This is a bottom-up fund. We look for companies that trade at a substantial discount to our estimate of fair value. For a biotech stock, fair value is the sum of the probability-weighted cash flow streams of the individual products it sells. We model cash flows for each of the indications, and if a drug is still in the development stage, we assess the probability of seeing that first dollar.

The companies I'll mention today are commercial-stage companies, so a lot of value is rooted in the approved products. We need to have a view that the results will meet or exceed the estimates that Salveen and David are publishing, and we need to have an assessment of the pipeline. For each of the companies I'll mention, there is an assumption that late-stage products will be successful, and that the companies will be able to replicate that success in the future with compounds beyond what we can see today.

On to your companies.

McCulloch: BeOne Medicines is my top pick today. BeOne started as a China specialty pharmaceutical company. It used the China-based business to fund a highly productive drug discovery and development engine. Its most important product is Brukinsa, approved to treat blood cancers. Brukinsa was designed from the start as a best-in-class molecule, aggressively developed in head-to-head studies against incumbents, and then successfully marketed against [products from] the largest pharma companies in the world, recently reaching the No. 1 share.

BeOne is in the process of doing the same with its next two pipeline compounds, Sonrotoclax and a BTK degrader. [Sonrotoclax, a blood cancer treatment, inhibits a protein that helps cancer cells survive. A BTK, or Bruton's tyrosine kinase, degrader aims to destroy a mutated protein that turns on B cells in blood cancer patients.] If BeOne's track record of success is extended to its broad mid- and early-stage pipeline, it is poised to become the next large pharma company.

We have been impressed with the team, the company's culture, and its success so far. This is one to hold for the long term.

BeOne trades on Nasdaq. Will many other China-founded pharma companies make their way to U.S. stock listings?

McCulloch: BeOne is a little misunderstood. It has some China roots but is now a global biopharmaceutical company with substantial U.S. operations. It redomiciled to Switzerland. As I mentioned earlier, many China biotech companies aren't going to build up the capability to run global Phase 3 trials and then commercialize in the U.S. Instead, you will still see companies out-license to large U.S. biopharma companies and even some venture-funded start-ups.

Let's hear about some of your other picks.

McCulloch: It is hard to talk about biotech without mentioning the company that has produced the most impactful drug in cancer this year: Revolution Medicines, or RevMed, for short. It recently received FDA approval for Rasonque, for treatment of refractory pancreatic cancer, after showing a doubling of overall survival. We think that benefit will extend to newly diagnosed pancreatic cancer, unlocking a $10 billion-plus revenue opportunity.

The stock has done well this year [shares have gained 150%] but we see further upside as Rasonque data roll out in lung and other tumors. RevMed's pipeline of other cancer drugs is carving out other niches. The company has executed well. It is led by a capable management team, and has a strong financial position now.

I'll also mention BridgeBio Pharma, a California-based biotech focused on rare diseases. It has three approved products, but we are focused on Attruby, for treatment of a rare heart disease called ATTR cardiomyopathy. We think it has a best-in-class profile and oral convenience, and expect that to drive revenue up to the $3 billion to $4 billion range.

In addition, we expect three new drug approvals for BridgeBio over the next 12 months, and solid launches for each. In the aggregate, they can add another $3 billion-$4 billion in peak sales. BridgeBio has a highly productive drug discovery engine, and the stock trades at a discount to its high-growth peers based on a price-to-sales ratio, which is undeserved.

Salveen, what are some of your top picks?

Richter: I'll speak to five stocks-three large-caps and two SMIDs [small- and mid-cap stocks]. We have Buy ratings on all. At Vertex Pharmaceuticals, my first name, we see further long-term growth based on execution for five multibillion-dollar opportunities. Commercially in cystic fibrosis, the company has maintained its competitive moat and continues to innovate significantly. In pain, we are starting to see commercial momentum with Journavx, Vertex's non-opioid pain-management drug, and we are also seeing Phase 3 development in a type of chronic pain; we'll get data next year.

Vertex also has an emerging new vertical in kidney disease, with multiple assets in development. Phase 3 data will come next year on Inaxaplin, a drug to treat APOL1-mediated kidney disease [caused by changes in the APOL1 gene]. We are also positive into the launch of what we view as Vertex's best-in-class IgA nephropathy treatment, Pove [povetacicept], with a target approval date of Nov. 30.

Vertex also has a gene-edited drug [Casgevy] via a partnership with Crispr Therapeutics that is gaining share.

Vertex recently acquired Crinetics Pharmaceuticals, establishing a fifth vertical in endocrinology. According to Vertex, at peak, Crinetics' lead assets have the potential to deliver more than $5 billion in combined annual revenue. We next look to the approval and subsequent launch of povetacicept in IgAN [IgA nephropathy] kidney disease, with multiple data catalysts thereafter.

We think new product cycles, pipeline optionality from the products I mentioned, and earlier-stage efforts will all add to upside for Vertex stock. Vertex doesn't have any near-term losses of exclusivity. The cystic fibrosis franchise is protected into 2039, for now.

My second name is Biogen. Looking to 2027, the upside looks good from the company's catalyst paths. Biogen recently acquired Apellis Pharmaceuticals, which resulted in a return to growth ahead of the key pipeline catalysts we expect in 2027. Also, now that the FDA has approved a subcutaneous autoinjector version of Biogen's Leqembi for treatment of Alzheimer's disease alongside the availability of a blood-based biomarker test, we expect a revenue inflection in 2027 or beyond.

Biogen acquired Human Immunology Biosciences, or Hi-Bio, in 2024, and we will see the first data next year for its treatment of antibody-mediated rejection, where one's immune system attacks a transplanted kidney. We are optimistic on that asset and a skin lupus drug-both with Phase 3 data next year. This year, the company has two data reads, albeit more risky: one in systemic lupus erythematosus and the other from a potential competitor to its Apellis-acquired ocular drug in geographic atrophy, which should be a clearing event for the stock.

My third large-cap is Amgen, which has continually performed. Our Buy thesis is underpinned by commercial execution, anchored by high-performing franchises that provide upside to estimates, and pipeline optionality. MariTide [a monthly injectable for weight loss and diabetes] remains a focus, with Phase 3 data in obesity in the first half of 2027. Amgen also has a business development lever. It has a flexible, size-and-structure-agnostic approach to securing clinical innovation.

Which "SMID" names do you favor?

Richter: Immunome will launch varegacestat next April if it is approved for treatment of desmoid tumors [non-metastasizing growths]. We see about $1.6 billion in peak sales. It will use the revenue from sales of the drug to fund a differentiated ADC [antibody-drug conjugate] pipeline.

The founder of Immunome previously founded Seattle Genetics, which was sold to Pfizer. Now he's coming back with a next-generation portfolio. The first data from this portfolio will likely come in December from a ROR1-targeting candidate, where we are optimistic. [Receptor tyrosine kinase-like orphan receptor 1 is a type of protein found in many cancers. The targeting drug kills cancer cells while limiting damage to nearby tissue.]

Finally, Taysha Gene Therapies is developing a gene therapy for Rett Syndrome [a neurodevelopmental disorder]. We are looking for potentially pivotal stage Phase 3 data early next year, which will be released concurrently with FDA feedback on the company's regulatory submission pathway. Taysha's gene therapy in Rett Syndrome is differentiated relative to what is available for patients today. We believe the study evaluating the gain or regain of developmental milestones is going to be successful. We would expect a nice inflection in the stock price in the context of the market opportunity.

Nilesh, you're next. Where do you see opportunity?

Kumar: Salveen mentioned MariTide, an interesting molecule. Long-acting drugs for obesity are an interesting class. We were investors in Metsera. We led that financing, and that was a great outcome. [Metsera, a biotech company focused on obesity treatments, was bought by Pfizer last fall in a deal worth up to $10 billion.]

Next-generation obesity drugs that can solve the tolerability issues of current-generation products and perhaps have even longer duration are interesting opportunities. Apart from its late-stage Phase III program in hypoparathyroidism, MBX Biosciences is also developing next-generation, long-acting obesity drugs, and there are others. The innovation there is the ability of the drug [dosing] to be generated slowly in the body and to build up over a longer time, such that the lower tolerability issues we have with the class may be avoided or lowered while maintaining weight-loss effects.

Companies developing next-generation Alzheimer's treatments with a better blood-brain shuttle are also worth watching. Korsana Biosciences is one. Alzheimer's disease is an important unmet need, and we feel hopeful about the newer class of drugs in development, either in the pharma pipeline or at new biotech companies like Korsana. The company is developing a better brain-delivery technology to create medicines that perhaps have better efficacy and tolerability. Alzheimer's disease is a large category if we have better drugs.

I also like the peptide space as a modality. It is coming into its own. In March, the FDA approved a new oral peptide to treat chronic inflammation in plaque psoriasis patients. [Icotyde, developed by Johnson & Johnson and Protagonist Therapeutics, blocks a protein receptor that leads to inflammation.]

Avere Therapeutics is developing a differentiated oral psoriasis drug in the IL23 [interleukin-23] class, which has recently seen the first oral IL23 drug approved. Avere is led by a seasoned management team that has developed many drugs in large markets. We expect this category of oral immunology drugs to be quite significant. [Avere is merging with NextCure and is expected to trade on Nasdaq later this year under the ticker AVRX.]

Do the rest of you see an investment opportunity in the therapeutic peptide space?

Risinger: Yes, there is a lot of interest, and a lot to watch. We are curious to see whether other large pharma companies will pursue injectable and oral peptide treatments for the obesity market.

Let's get your closing thoughts. We'll start with Evan.

McCulloch: Again, we have a positive outlook on the biopharma sector. Biotech is at the epicenter of biological innovation. It benefits from an aging population. And we increasingly believe the biotech and pharma industry is going to be an AI beneficiary. Companies are using AI to become more efficient, and hopefully see higher probabilities of success and shortened drug development times. If they can meaningfully change the return on research and development, or R&D productivity, we will see completely different valuations in the sector. I don't know if we'll have the answer by next year because the drug development cycle takes about a decade. But all the early indicators are that things are going in the right direction.

From a stock perspective, the group has done well. Most Favored Nation tariffs are behind us. Mergers and acquisitions will continue. And valuations are still reasonable. My guess is that a year from now, the sector will have done well, and hopefully we will have a better appreciation of the impact of AI on the business.

Kumar: Evan said it well. The innovation aspect is very high. Given the dearth of initial public offerings in the past few years, biotech companies remained private and generated mature data sets, which speaks to the quality of companies that are now coming public, and perhaps to IPO performance, as well. There are some macro concerns facing the biotech sector that could be a challenge at some point, but overall I feel comfortably bullish about what is in store for the sector in the coming year.

Risinger: I would echo Evan's and Nilesh's comments. Innovation is paramount, and we are hoping for continued progress in innovation. M&A activity will remain robust for the industry's large-caps. Large pharma companies have tremendous balance sheets and cash to put to work. All of them need to pursue acquisitions. Even Lilly, which is growing the fastest among the large-caps, is focused on enhancing its pipeline for product launches beyond 2030. Across the board, we expect companies to pursue additional deals. The net result is that small- and mid-cap companies are likely to benefit.

A year from now, we may be talking about pricing more. The Trump administration is aligned with the industry this year, and President Donald Trump was pleased with the temporary agreements the industry signed [regarding pricing]. But I don't think the biopharma industry is out of the woods when it comes to critiques about U.S. drug pricing. Irrespective of the outcome of the midterm elections, this will be a topic of discussion a year from now. Remember, many of the agreements that companies confidentially signed with the administration last year were three-year agreements that expire at the end of 2028.

Salveen, take us home.

Richter: I don't have much to add. I am surprised that we got this far without talking about AI. We are seeing emerging evidence of the quantitative impact of AI, such as Bristol Myers' $250 million in supply-chain savings. Our analysis of clinical results and go-forward decisions from 96 AI-designed drugs yielded around a 1.6 times increase in the probability of success across Phase 1 and Phase 2 trials, versus the historical success rate. This will be an area we continue to monitor.

Thanks, Salveen, and everyone.

-Mackenzie Tatananni and Bill Alpert contributed to this article.