Mizuho's Jared Holz on why he is bullish on biotech heading into 2026

Sector Overview - Healthcare has been the best performing sector over the last three months as investors shift from high-flying tech and AI stocks to better valuations [1] - The sector has underperformed the S&P by 20% in 2023 and 2024, with a 5% lag in the current year, indicating potential for continued growth [2] Drug Pricing Dynamics - The drug pricing rhetoric has been a significant factor in the sector's outlook, with recent developments suggesting a more positive environment for pharma and biotech [3][4] - The implementation of the Inflation Reduction Act (IRA) and agreements between pharma companies and the White House on pricing mechanics are expected to lead to a better year for the sector [4][5] Biotech Outlook - The biotech sector has experienced a strong performance over the past four to six months, with the XBI index showing unprecedented positive returns [8][9] - The negative narrative surrounding drug pricing is starting to dissipate, which could enhance investor sentiment [10] Market Activity - There has been significant merger activity in the biotech space, with 20 deals over $500 million in publicly traded equities this year, indicating robust market dynamics [11] - The interest rates trend is also seen as beneficial for the sector, as the exponential increase in the denominator of biotech stocks has stabilized [10] AI Impact - AI's role in drug discovery is viewed positively, although its impact is not expected to be revolutionary, as pharma companies have been utilizing computer-guided models for years [12][13] Political Influence - Political interest in healthcare, particularly regarding health insurance companies and drug pricing, remains a concern for investors, as it has historically contributed to the sector's underperformance [14]