The biotech sector returned to health in 2025 after years of sickly returns. A key sign of vitality was the SPDR S&P Biotech ETF (IBB 2.72%), which rose 27% in 2025, nearly doubling the 16% gain by the S&P 500.
Lower interest rates aided the biotech bounceback, as many companies in the sector rely on a big dose of debt. Their shares also rose as the number of patent cliffs for blockbuster drugs increased, prompting pharmaceutical giants to go on a buying spree, scooping up therapies pioneered by biotechs.
Shares of Halozyme Therapeutics (HALO 4.35%) have increased by more than 25% over the past year, while shares of Catalyst Pharmaceuticals (CPRX 4.18%) have risen slightly more than 3% over that time. The two mid-cap companies, after our fiscal checkup, appear to be poised for a strong 2026, albeit for different reasons.
Halozyme has a hale and hearty moat
Halozyme, based in San Diego, is a pick-and-shovel stock with lower costs than most biotech stocks because it focuses on drug-delivery systems, not therapies. It is in the process of acquiring a competitor, Elektrofi, which uses a different drug-delivery system.
NASDAQ: HALO
Key Data Points
Halozyme licenses its Enhanze drug-delivery platform to other biopharmaceutical companies, enabling them to optimize intravenous and subcutaneous (under-the-skin) dosing. The Enhanze platform is already used in 10 drugs, including two of the top cancer therapies, Herceptin, a Roche drug used to treat breast cancer and stomach cancer and Johnson & Johnson therapy Darzalex Faspro, used to treat the blood cancer, multiple myeloma.
Halozyme began receiving additional royalty revenue this year as Opdivo, a solid tumor therapy sold by Bristol Myers Squibb, received approval in Europe in May for its subcutaneous use. Halozyme isn't as affected by tariff concerns as its manufacturing is in the U.S.
Halozyme's fiscal fitness is demonstrated by strong third-quarter numbers with record revenue and earnings per share (EPS). Third-quarter revenue was up 22% year over year to $354 million, with royalty revenue of $236 million, up 52% over the same period a year ago. Third-quarter earnings per share (EPS) jumped 36% year over year to $1.43. It also trimmed its net long-term debt from $1.5 billion to $800 million.
One concern about Halozyme is that its margins could wither under the recently passed Inflation Reduction Act. Another worry is the cost and outcome of its patent suit with Merck over that company's recently FDA-approved subcutaneous version of lung cancer therapy Keytruda. However, a German court issued a preliminary injunction against Merck in December over the subcutaneous version of Keytruda.
Halozyme is forecasting annual revenue of $1.3 billion to $1.375 billion, meaning 28% to 35% growth, and EPS of $6.10 to $6.50, an increase of at least 44%. Those gains, if realized, could give investors' portfolio a healthy shot in the arm.
Catalyst Pharmaceuticals' focus on rare diseases drives profits
Catalyst, based in Coral Gables, Fla., specializes in treatments of rare and central nervous system disorders. It has three commercial therapies: anti-seizure drug Fycompa, Firdapse, which is the only FDA-approved therapy for Lambert-Eaton myasthenic syndrome, a neuromuscular condition that often affects small cell lung cancer patients, and Agamree, which treats Duchenne muscular dystrophy.
NASDAQ: CPRX
Key Data Points
The bull case for Catalyst is its phenomenal revenue growth. From 2021 to 2024, it reported a revenue gain of 249%.
This year, through nine months, Catalyst posted double-digit gains. Overall revenue jumped 24%, year over year, to $436.3 million. EPS crushed a 45.9% climb over the same nine-month period a year ago, to $1.27. Thanks to strong sales growth, mainly from Agamree, Catalyst predicts annual revenue of $565 million to $585 million, up nearly 17% at the midpoint from 2024.
As the company adds indications for its therapies, it is well-positioned with $700 million in cash and no debt as of Dec. 31, allowing it to grow through research and development spending or key acquisitions.
The biggest concern for Catalyst is declining Fycompa sales, which fell 26% year over year to $23.8 million in the third quarter, due to increased competition from generic treatments. However, the prospect of Canadian approval for Agamree and promising early data from its SUMMIT study on Agamree probably outweighs that worry. The SUMMIT study is a five-year follow-up to evaluate the safety profile of Agamree, looking at its potential benefits on behavior, stature, bone health and cardiovascular health.
2026 could be a banner year for biotech stocks
Halozyme and Catalyst continue to see healthy double-digit revenue growth and strong fundamentals. However, as smaller mid-cap stocks, they remain buys because they have been somewhat overlooked.
Unlike many biotech competitors, both companies are profitable. Despite that, their valuations haven't skyrocketed, at least not yet, as evidenced by their price-to-earnings ratios.
Halozyme is trading around 15 times earnings, while Catalyst is trading for less than 14 times earnings in a sector where the average P/E is above 26. Both companies have low or no debt, allowing them more flexibility in choosing how they plan to grow.
They have also carved out their own niche among biotechs, focusing on what they do well. Halozyme is expanding its drug-delivery portfolio, while Catalyst enjoys high margins by focusing on rare diseases with unmet needs. Smart biotech investors would do well to pluck up shares to start what looks to be a promising year.
