In 2025, just 318 US biotech deals closed in Q2 – the lowest in a decade – even as mega-rounds propped up total investment volumes. For a sector that was booming during the pandemic era, the contrast could not be starker. Leaders from trade organisations and innovation accelerators agree on the importance of maintaining a supportive state and federal environment so that young companies can continue to progress while waiting for investor confidence to return.
Biotech investors hit reset
A healthy innovation cycle relies on steady early-stage investment, follow-on rounds, and credible exits through IPO or M&A. This year, US life sciences venture activity has seen little movement, reflecting a cautious investment climate. This cool-down first started with the post-2021 market correction, following a boom when many biotech companies raised capital at inflated valuations during a COVID-driven interest peak in the sector.
Today, US investor wariness is further reinforced by policy uncertainty as the new administration pursues an assertive, change-driven agenda. Reductions in public research funding due to budget cuts in the National Institutes of Health (NIH), delays at the FDA due to staffing challenges, and longer, less predictable review timelines all add risk to the life cycle of biotech.
At the same time, pricing reforms such as the negotiation of medicines by Medicare under Biden’s Inflation Reduction Act (IRA), and initiatives like the Most-Favored-Nation executive order which aims to further reduce costs, raise concerns over future revenue models and market access for the entire biopharma industry. Together, these headwinds are being perceived as a weakening of the overall innovation ecosystem, prompting investors to reassess their strategies and deploy capital more selectively.
It is also worth noting that this cooling of investor sentiment is not just a US phenomenon. In Q1 2025 European deals dropped around 64 percent versus Q1 2024. While Asia is showing signs of selective resilience, with biotech deal volume rising 14 percent year-on-year in H1 2025, funding levels remain modest by US standards.
However, despite these headwinds, the financing pool has far from dried up. In fact, sizable investments have been dished out, but rather than being widespread across numerous deals, the capital that has been generated this year has mostly concentrated around a smaller number of high-profile deals – favouring value over volume.
According to HSBC Innovation Banking’s Midyear Venture Healthcare Report, a handful of mega-rounds propped up healthcare venture funding in H1 2025, while early-stage financings declined – indicating a greater preference for less risky clinical-stage assets with more assertive proof points.
“Venture capital remains steady overall, but early-stage, preclinical investments have declined. Investors are increasingly focused on companies already in clinical development, where the path to exit is clearer” confirms Rich Bendis, CEO of BioHealth Innovation – an innovation intermediary that connects market-ready research with management and funding across Maryland, Virginia, and the Washington DC metro area.
Most recently, Q2 saw 318 deals, the lowest quarterly figure in a decade, yet approximately USD 6.5 billion was invested as outlined in a quarterly report on financing trends by San Francisco law firm Orrick – a level above most pre-pandemic quarters.
IPO activity has also been limited, with just six US life science IPOs in the first half of the year versus the 30 to 40 typically expected according to Bendis. Even in Massachusetts, one of the most recognised biotech hubs in the country and globally, there has only been one IPO so far in 2025 and overall venture investment has fallen to its lowest level since 2017, reported Kendalle O’Connell, CEO of MassBio.
“Instead of many USD 30–40 million seed and Series A rounds, just 10 of the 93 rounds so far this year make up more than half of all funding, primarily targeting later-stage companies.”
Shaky public programmes as lifelines
With IPOs stalling and VCs pulling back, the reliance on public state- and federal-level incentives has never been greater. New York, like many states, offers specific biotechnology tax credits to go alongside more general R&D tax credits at both state and federal level – a rational necessity for a high-stakes sector, as emphasised by Jennifer Hawks Bland, CEO of the state of New York’s trade association, NewYorkBIO.
“These incentives make sense, particularly in life sciences, where the workforce tends to be highly skilled, well-compensated, and deeply tied to the long-term economic health,” she elaborates.
Beyond credits, the SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) programmes remain pivotal sources of non-dilutive capital for early translational work. “The value of SBIR is huge,” Hawks Bland puts it. “It provides…funding that helps these growing companies and academic spinouts de risk their research before seeking institutional investment.”
In 2023, federal agencies awarded roughly USD 6.3 billion through SBIR and STTR contracts and grants to early start-ups across the country (govspend). However, these key funding sources are also subject to uncertainty. In early September, the US House of Representatives extended the programmes for one fiscal year only weeks before they were due to expire. While the renewal was welcome, their longer-term fate will once again be on the line next year.
Looking ahead, early-stage biotechs, start-ups, and sector stakeholders alike hope to put the programmes into law to ensure their long-term continuation. As Hawks Bland notes, “It is a relatively modest public investment that generates significant returns, economically and scientifically. These funds help create new companies, drive job growth, and keep the innovation pipeline flowing, which ultimately benefits patients.”
Turning to alternative sources while waiting for a rebound
Although classic early-stage venture capital has thinned and government-supported programmes remain at risk, trade associations like MassBio are helping members identify and access alternative opportunities such as angel funds and venture philanthropy.
“I serve on the board of the American Cancer Society, which is a major contributor to early-stage oncology research, yet many biotech entrepreneurs may not immediately recognise it as a funding source,” explains O’Connell. “A key part of our role is to demystify this wider network of alternative capital and create meaningful connections where they have not existed before.”
These are viable options for raising funds, but the mutual confidence across the ecosystem is that the biotech capital landscape will continue its cycle, re-energise, and emerge from the current investment winter.
“Looking ahead to 2026, my hope is to see greater liquidity, more exit activity, and renewed reinvestment into early-stage ventures, the companies that will fuel the next wave of life sciences innovation,” the MassBio CEO envisions. And despite current disruptions, stakeholders remain convinced that the US will continue to endure as a leading biotech ecosystem.
As Rich Bendis of BioHealth Innovation puts it, “the US offers the most robust early-stage and basic research environment in the world through the NIH and our top-tier academic universities. Regardless of public policy shifts or budget changes, the US will continue to be one of the most competitive and compelling markets [for companies].”
