Small and mid-cap biotech stocks experienced a significant rebound in early 2025, driven largely by a surge in mergers and acquisitions (M&A). According to Dr. Terry Smith, Director of Life Sciences Research at Emerald Advisers, the sector had been under pressure for several quarters before this resurgence. “Biotech was a coiled spring following several quarters of underperformance,” he remarked. The shift in sentiment resulted from several factors, including lower interest rates, a rise in M&A activity, and enhanced clarity on tariff policies and drug pricing frameworks such as the Most Favored Nation (MFN) policy.
M&A as a Stabilizing Force
M&A has emerged as a crucial stabilizing force in the biotech landscape. Data from JPMorgan indicates that small- and mid-cap companies represented 57% of biopharma acquisitions by deal count in the third quarter of 2025. Although the median deal value decreased to $303 million from $516 million in the previous quarter, the total M&A volume for 2025 surpassed that of the entire year of 2024, bolstered by 33 deals worth $30.9 billion.
Johnathon Anderson, CEO of biotech firm Peptide Systems, emphasized that the influx of M&A activity has altered risk perceptions in the sector. “This M&A floor has de-risked the sector, allowing investors to chase growth in specific high-tech sub-sectors,” he explained. Dr. Smith agreed, noting that a consistent series of mid-sized acquisitions with strong premiums is more beneficial for small-cap investors than fewer mega-deals.
Shift in Investor Focus
While GLP-1 obesity drugs dominated discussions in 2024, investor interest has shifted in 2025 towards cancer and autoimmune disease treatments. Of particular note are next-generation cell therapies, including in-vivo and non-viral CAR-T approaches. Traditional CAR-T therapies involve high costs and complex operational procedures, requiring cell extraction, lab modification, and reinfusion. In contrast, newer in-vivo platforms aim to engineer immune cells directly within patients, enhancing cost-effectiveness and scalability.
Over the past six months, approximately $6 billion in acquisitions have taken place within this niche, highlighting significant interest from larger pharmaceutical companies, according to Anderson.
Prominent Biotech Stocks to Monitor
Investors are keeping a close eye on several small and mid-cap biotech stocks as the sector progresses into 2026. Key companies include:
– **BridgeBio Pharma (NASDAQ: BBIO)**: Specializing in genetic and heart diseases, BridgeBio’s key heart medication has already generated considerable sales, pushing its Q3 2025 revenue above $120 million. Year-to-date, the stock has risen 171.38%.
– **Argenx (NASDAQ: ARGX)**: With over $1 billion in quarterly product sales, Argenx remains a commercial success story, despite pausing development in one eye disease program. Year-to-date growth stands at 35.04%.
– **DBV Technologies (NASDAQ: DBVT)**: Developing a skin patch for children with peanut allergies, DBV’s late-stage trial results have been promising. The company plans to pursue U.S. approval in early 2026. Its stock has surged 500% year-to-date.
– **Viridian Therapeutics (NASDAQ: VRDN)**: Focused on thyroid eye disease, Viridian’s lead treatment has shown lasting benefits in trials, with a U.S. launch planned for 2026. The stock has increased 63.36% this year.
– **Kyverna Therapeutics (NASDAQ: KYTX)**: Working on one-time immune “reset” therapies for autoimmune diseases, Kyverna’s stock has gained 142.09% year-to-date, supported by promising trial results.
Looking Toward 2026
As the industry looks ahead to 2026, expectations for increased M&A activity and strategic partnerships are high. Elena Meng, a research analyst at Gabelli Funds, stated, “We expect large pharmaceutical companies to seek opportunities to replenish their late-stage pipelines, particularly in immunology, rare diseases, and neurology.” She also noted that a lower interest-rate environment will likely improve funding conditions for companies with credible regulatory paths and near-term catalysts.
Despite the positive outlook, challenges remain. Dr. Smith pointed out that turnover within the FDA could pose long-term risks, potentially slowing approval processes due to the loss of institutional knowledge, despite current timelines remaining stable. Additionally, Anderson highlighted a significant “IPO air pocket” resulting from the biotech downturn of 2023-2024, which has left fewer IPO-ready companies. This has redirected institutional capital toward Private Investment in Public Equity (PIPE) deals, transforming public small-cap biotechs into late-stage venture investments.
As the biotech sector navigates these dynamics, investors remain eager to identify the next wave of innovations that could reshape the industry landscape.