Biotech Funding in 2025: Navigating the New Investment Landscape

The predictions for biotech funding for 2025 might best be described as cautious optimism, following a restrained 2024. But those expecting major changes in financing trends might be disappointed.

The focus for investor money will continue to be fewer, but larger deals, with late-stage assets – phase 2 and beyond – remaining the sweet spot for biotech funding. Data from Pitchbook shows that investment in phase 2 increased from $3.8m in 2023 to $5.2m in Q3 2024.

Products at this stage of development remain appealing because of their strong clinical data, allowing clarity on efficacy and safety. But there is some hope for earlier stage products and companies. Those with either compelling stories or operating in hot development areas can buck this trend.

Last year, Avenzo Therapeutics secured $386m in a series A/A1 round for its phase I treatment for solid tumours, AVZO-021. While Mirador capitalised on the increased interest in inflammatory diseases to raise $400m in a series A round for its pre-clinical pipeline.

Blame it on the economy

The trend towards later, safer bets has also been influenced by macroeconomics.

Historic high interest rates saw venture capital (VC) groups hampered in their capacity to raise new money. Capital amassed by venture groups declined from $30.8bn in 2021 to $11.7bn in 2024, according to Pitchbook.

This inability to replenish their funds led to increased selectivity from investors, leaving them favouring late-stage, derisked companies with defined paths to commercialization. Or in some cases even more cautious about deploying the capital they have, with some holding onto their cash to prop up existing investments as and when needed.

Heading for the exit

What could stimulate financings this year is the small flurry of initial public offerings (IPOs) in late 2024 turning into an opening of the IPO window in 2025. This would offer VCs a welcome return on their investment and encourage reinvestment.

According to BioPharma Dive, 23 biopharma companies floated in the US in 2024, compared with 20 in 2023. While this was a positive development, these numbers remain well below the pandemic fuelled IPO bonanza of 2021 when 104 listed.

Some industry observers are, however, predicting that the prospect of further interest cuts following rate reductions in November and December, will facilitate a fuller recovery in IPOs in 2025.
This theory will be tested in the first few months of the year if the companies who put their float plans on hold in 2024 finally take the plunge and list.

Going earlier for biotech funding

A stronger IPO market is one of the factors that could help reignite VC interest earlier-stage assets. Another is the expected improved macroeconomic outlook for 2025, fuelled by lower interest rates and cheaper credit.

But even if investor interest in earlier stage assets does pick up, it is unlikely to be spread equally across assets. Hot Indications and platform technologies are still more likely to attract funding including obesity and radiopharmaceuticals.

Recent examples of investor appetite for companies treating obesity include one of the biggest investments of the year Metsera’s $215m series B round for its portfolio of GLP-1 drugs, including lead product MET-097.

AI drug discovery companies with their promise of reducing drug development timelines and costs are also likely to remain a hot area early-stage investment. The most striking example of this was the $1bn received by Xaira, despite the company not having any clinical data or products.

Big pharma buyouts of radiopharmaceuticals, including Novartis paying $1bn for radiopharmaceutical company Mariana Oncology and Bristol Myers Squibb offering $4.1bn for RayzeBio, have placed this technology firmly on investors radars. These takeouts have reduced the number of independent companies in the space, increasing competition for assets. As such, investments like the $175m raised by Atkis Oncology’s series B round and Alpha-9 Oncology’s $75m series C round could continue in 2025.

ADCs are an equally hot area. Recent M&A has included AbbVie’s $10.1bn buyout of ImmunoGen in 2023 and Johnson & Johnson $2bn deal for Ambrix Biopharma last year. Again, this deal interest trickled down into a spate of ADC venture financings last year including Adcendo raising $135m in a series B round and Alentis Therapeutics receiving $181m in a series D round.

Life on the outside

The investment numbers above prove that it is possible for early-stage companies in fashionable spaces to buck the late-stage investment trend and obtain biotech funding for phase 1 and pre-clinical assets.

While this might appear depressing for those operating in more traditional areas all might not be lost. The ongoing need for innovative products that can be successfully commercialized has not changed.
But what has changed is that early-stage companies are having to work much harder to attract biotech funding. There are, however, a number of things they can do to increase their chances of success:

• Bring data
  In the current risk-adverse climate, companies can no longer rely solely on storytelling. Those wanting to impress VCs stand a much better chance of success if they come with robust data, so forming a data strategy early on is essential.
• Work on your business case
  Alongside data, a well thought out, detailed business case will show investors how you will succeed in the market. This should include how your product is differentiated from current or other experimental products. A good business case can also help companies that do not yet have clinical data.
• Keep the patient in mind
  A comprehensive assessment of the potential patient population will show investors that you are thinking about commercialisation. It will also help you to understand whether patients see the benefits a new drug that is like to be more expensive than existing treatments.
• Build the right team
  A good team is one of the big things VCs say sways their investment decisions, especially teams with previous experience of delivering success. One of the advantages of having an experienced team is that investors might feel comfortable making investments in companies with little or no data, witness Xaria. But for very early-stage companies this can be a huge stumbling block. However, the recent large-scale layoffs at bigger pharma groups and the number of biotechs that wound up their operations in 2024 offer an unparalleled opportunity for startups to recruit experts.
• Demonstrate your value
  In an era of increased focus on healthcare costs, being able to show how you are addressing unmet medical needs, or improving patient outcomes is a definite advantage. It will also help you demonstrate to investors that your product has potential for long-term growth.
• Show your regulatory knowhow
  The speed of scientific breakthroughs are being matched by the changes in regulations needed to get new products to market. So, demonstrating you understand the regulatory landscape in your area, and have a clear roadmap to steer your product through the regulatory process will reassure investors.
• Leverage any partnerships
  Partnerships, particularly with larger groups add credibility to your product by adding external validation. They can also enhance your existing capabilities. Investors are also more inclined to invest in companies where others have already taken a financial or contractual interest.
• Do your homework on investors
  Knowing your investor’s preference for stage of investment, therapy area choices and current portfolio can stop you wasting VCs time and yours. A good insight into an investor can also help you argue more convincingly why you are a good fit. The biotech world tends to be relatively small, so there is a chance someone you know has already had dealings with an investor, giving you a valuable inside track. Once you have done your homework you can tailor your presentation.

In conclusion

Heading into 2025 the biotech funding environment will continue to be dominated by the need for clinical data to de-risk investments. The result will be VCs remaining in their investment comfort zone of phase 2 and later.

But early-stage companies in hot therapy areas, or those with must have assets will carry on bucking the late-stage investment trend, as investors look to capitalize on wider market interest in these fields.

For young companies outside of the industry’s favoured areas, the funding pendulum could shift with improvements in the macroeconomic climate in 2025. Falling interest rates and the opening of the IPO window, could encourage investors to start taking earlier-stage funding bets.

But as previously stated, these early-stage companies will need to clearly define their value proposition and show how they meet the ongoing patient need for innovative therapies if they want to succeed in 2025.