The Policy Shift That Changed Biotech Overnight
The One Big Beautiful Bill Act that was signed in 2025 has fundamentally derisked the biotech business model. The OBBBA closed a big loophole in the Inflation Reduction Act…now, drugs for rare diseases can keep their “no negotiation” status even if they’re approved for multiple rare conditions, which is a big win for smaller biotech companies (like the ones in XBI) since it helps protect their long term revenue. Before this, companies risked losing that protection if their drug expanded into multiple uses, which could hurt profits. Now, that risk is gone.
BIOSECURE Act
Additionally, the administration has signaled a hard restoring of the drug supply chain (through the BIOSECURE Act). By penalizing reliance on foreign "companies of concern," the government is effectively subsidizing the US-based biotech infrastructure, favoring the domestic companies within the XBI.
2026 Tax Advantage:
The most immediate driver for XBI’s major recovery over the past year is the restoration of Section 174 R&D expensing. The OBBB now allows small cap biotechs (and other corporations) to deduct 100% of their domestic R&D costs in the year they are incurred, rather than amortizing over the five years. For the pre-revenue companies in XBI, this helps extends their "burn rate" by 12-18 months, reducing the need for dilutive stock offerings and making them more attractive to investors
Risks to the Bull Case
The MAHA movement is working against big pharma in many ways, making it an era of uncertainty for the industry. Investors should keep an eye on regulatory developments in the space. Trump’s push for the “most favored nation” pricing can also compress margins for many winners in the index.