The drug and biotechnology sector has staged a notable recovery in 2026, driven by improving investor sentiment, continued innovation, strong quarterly results, upbeat full-year outlooks, favorable regulatory developments and renewed dealmaking activity. Pharmaceutical companies continue to benefit from steady demand for essential medicines, an aging global population and the rising prevalence of chronic diseases.

However, the industry continues to face challenges, including slower-than-anticipated launches of newer therapies, impending patent expirations for several blockbuster drugs and persistent policy and pricing uncertainties across major markets. Competition also remains fierce, particularly in high-growth therapeutic areas such as obesity, cardiometabolic diseases and oncology.

Despite these challenges, the industry's sustained focus on innovation, advancements in drug development technologies and positive clinical and regulatory developments underpin a favorable long-term outlook. Large pharmaceutical companies, in particular, benefit from diversified product portfolios, robust cash flows and stable profitability, positioning them as relatively defensive investments and appealing long-term holdings amid broader market volatility.

Among the large drugmakers, Eli Lilly (LLY Quick QuoteLLY - Free Report) , Novartis (NVS Quick QuoteNVS - Free Report) and Bayer (BAYRY Quick QuoteBAYRY - Free Report) are worth watching as the industry shows a strong recovery.

Industry Description

The Zacks Large Cap Pharmaceuticals industry comprises some of the largest global companies that develop multi-million-dollar drugs for several therapeutic areas, like neuroscience, cardiovascular and metabolism, rare diseases, immunology and oncology. Some of these companies also make vaccines, animal health products, medical devices and consumer-related healthcare products. They invest millions of dollars in their product pipelines and line extensions of their already-marketed drugs. Continuous innovation is a defining characteristic of large pharma companies. They constantly invest in drug development and the discovery of new medicines. Regular mergers and acquisitions and collaboration deals are other key features of large drugmakers.

What's Shaping the Future of the Large-Cap Pharma Industry?

Innovation and Pipeline Success: For large drugmakers, an innovative pipeline remains a competitive necessity and a key driver of revenue growth. Pharmaceutical companies continue to prioritize innovation and allocate substantial resources to R&D. Drugmakers are increasingly leveraging artificial intelligence (AI) to streamline drug discovery and development processes and identify promising therapies. Emerging technologies, including gene editing, mRNA-based treatments, precision medicine and next-generation sequencing, are transforming the drug and biotech industries.

Innovation remains a major growth catalyst, particularly in high-demand therapeutic areas such as oncology, obesity, diabetes, immunology and rare diseases. Strong demand for GLP-1-based obesity and diabetes treatments, coupled with advancements in antibody-drug conjugates, cell and gene therapies and precision medicine, is creating significant revenue opportunities.

Successful drug launches, label expansions and pipeline advancements across key therapeutic areas, along with positive clinical trial results and regulatory approvals, are expected to serve as important growth catalysts for drug and biotech stocks.

Aggressive M&A & Collaboration Activity: The sector continues to witness robust M&A activity. Large pharmaceutical companies have substantial financial resources and need new growth drivers as several blockbuster drugs approach patent expirations. Rather than relying solely on internal drug development, these companies are increasingly acquiring biotech firms with promising clinical-stage or commercially validated assets. Collaborations and licensing partnerships with smaller companies also remain strong. M&A activity, which rebounded in 2025, gained further momentum in 2026.

High-growth therapeutic areas such as obesity/cardiometabolic diseases, oncology, immunology, rare diseases and gene therapies remain key M&A targets. Inflammatory diseases and neuroscience have also attracted significant buyout interest.

Some notable $5 billion-plus deals in 2026 include Merck's acquisition of Terns Pharmaceuticals, Gilead's acquisition of Arcellx, Biogen's acquisition of Apellis Pharmaceuticals, Eli Lilly's acquisition of Centessa Pharmaceuticals, GSK's acquisition of Nuvalent and AbbVie's acquisition of Apogee Therapeutics, among others.

Pipeline Setbacks & Other Headwinds: The failure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be setbacks for large drug companies and significantly hurt their share prices. Other headwinds for the industry include pricing and competitive pressure, generic competition for blockbuster treatments, a slowdown in sales of some of the most high-profile older drugs, Medicare drug price negotiations and increasing FTC scrutiny of M&A deals.

Macroeconomic Uncertainty: Uncertain macroeconomic conditions—including persistent inflationary pressures, concerns about U.S. fiscal sustainability and geopolitical tensions across several regions—could weigh on investor sentiment and increase uncertainty around the global economic outlook.

Adding to these concerns is uncertainty surrounding U.S. trade policy. President Trump has imposed tariffs of up to 100% on certain imported patented pharmaceuticals and associated ingredients to encourage domestic manufacturing, subject to exemptions and lower rates under trade agreements and company commitments. These measures could increase costs, disrupt global supply chains and create additional uncertainty for the pharmaceutical industry.

Zacks Industry Rank Indicates a Bright Outlook

The Zacks Large Cap Pharmaceuticals industry is an 11-stock group within the broader Medical sector. The group’s Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.

The Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #79, which places it in the top 32% of 246 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few large drug stocks that are well-positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s performance and its current valuation.

Industry Versus S&P 500 & Sector

The industry has outpaced the Zacks Medical Sector as well as the S&P 500 so far this year.

Stocks in this industry have collectively risen 22.6% so far this year compared with the Zacks Medical Sector’s increase of 8.5%. The Zacks S&P 500 composite has risen 7.2% in the said time frame.

YTD Price Performance

Industry's Current Valuation

Based on the forward 12-month price-to-earnings (P/E), a commonly used multiple for valuing large pharma companies, the industry is currently trading at 19.39X compared with the S&P 500’s 18.25X and the Zacks Medical Sector's 21.81X.

Over the last five years, the industry has traded as high as 20.80X, as low as 13.09X and at a median of 17.22X, as the chart below shows.

Forward 12-Month Price-to-Earnings (P/E) Ratio

3 Large Drugmakers to Watch

Bayer: The company’s key drugs Nubeqa for cancer and Kerendia for chronic kidney disease associated with type II diabetes are fueling growth in its Pharmaceuticals division, making up for the decline in sales of oral anticoagulant Xarelto due to patent expiration. Bayer is also working to expand the labels of Nubeqa and Kerendia, which, if successful, can further drive growth.

Multiple high-impact launches across oncology, cardiology, and women’s health further extend the pharma division’s growth runway. Some key new drug approvals are Lynkuet (elinzanetant) for moderate-to-severe vasomotor symptoms (VMS) associated with menopause and Hyrnuo (sevabertinib) for HER2-mutant non-small cell lung cancer.

Strategic collaborations and acquisitions, including partnerships with Vividion, AskBio and Cytokinetics, continue to support innovation. Bayer recently received a favorable ruling in the ongoing glyphosate litigation. However, generic competition for Xarelto and Eylea continues to weigh on sales, while the company's elevated net debt remains an overhang. The Crop Science segment’s sales declined in the third quarter and remain volatile.

This Zacks Rank #2 (Buy) company’s shares have risen 41.7% so far this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

Estimates for its 2027 earnings per share have been stable at $1.34 per share over the past 30 days.
 

Price and Consensus: BAYRY

 

Novartis:  It has a strong and diverse portfolio of products. Strong performance from key products such as Kisqali, Kesimpta, Pluvicto, and Scemblix continues to support the company’s momentum. Novartis’ recent performance demonstrated that its portfolio of newer growth products is increasingly capable of offsetting the impact of generic competition, including the loss of U.S. exclusivity for blockbuster heart failure drug Entresto. Generic competition for Promacta is also pulling down the top line. The company is strengthening its long-term growth outlook through targeted business development.

Novartis has a Zacks Rank #2 at present. The stock has risen 17.9% so far this year. The Zacks Consensus Estimate for 2027 earnings has risen from $9.80 to $9.94 per share over the past 30 days.

Price and Consensus: NVS

Eli Lilly:  Lilly has seen extraordinary momentum in its cardiometabolic franchise. Its blockbuster drugs, Mounjaro for type II diabetes and Zepbound for obesity, have become some of the fastest-growing medicines in pharmaceutical history, driven by enormous global demand for GLP-1 therapies. These therapies account for around 65% of the company’s total revenues and have become key top-line drivers for Lilly, with demand rising rapidly.

The launch uptake for its new once-daily oral GLP-1 pill, Foundayo, has been encouraging. Foundayo can prove to be a commercial game-changer for Lilly. It is building what could become a broader next-generation obesity franchise rather than relying solely on tirzepatide. Its late-stage pipeline includes retatrutide, whose triple GIP/GLP-1/glucagon mechanism could potentially deliver greater weight loss and metabolic benefits than existing therapies.

Lilly's investment case is no longer dependent solely on its GLP-1 franchise. Its newer non-GLP-1 therapies such as Omvoh, Jaypirca, Ebglyss, Kisunla and Inluriyo are gaining traction and have become meaningful growth contributors, with the positive trend expected to continue.

The company has also embarked on an aggressive M&A spree in the past couple of years, acquiring biotech companies across oncology, neuroscience, cardiovascular disease, gene editing, inflammation, cell therapy and vaccines to diversify its long-term growth drivers beyond GLP-1 therapies. It has announced more than $20 billion in biotech deals this year.

Lilly has its share of problems. Pricing pressure is becoming increasingly visible. Worldwide realized prices fell 15% during the third quarter.  Price is expected to continue to be a drag on top-line growth in 2027 as well. Rising competition in the GLP-1 diabetes/obesity market is a key headwind. Also, sales of late life-cycle products like Trulicity and Taltz have declined this year.

Lilly has a Zacks Rank #3 (Hold) at present.

The stock has risen 26.0% so far this year. The Zacks Consensus Estimate for 2027 has risen from $46.58 to $50.04 per share over the past 30 days.

Price and Consensus: LLY