Biotech Funding in 2025: A Wild Ride Through Uncertainty – ( $IBB $XBI $SER )

The biotech sector, long known for its rollercoaster fortunes, is currently experiencing a particularly stomach-churning drop. If the industry were an amusement park, the “Trump Policy Plunge” would be its latest and most daunting attraction—one that’s left investors clutching their wallets a little tighter and startups searching for the exit ramp.

A Steep Decline in Funding

Recent data paints a sobering picture: biotech funding in May 2025 nosedived by 57% compared to the previous year, landing at just over $2.7 billion. This follows an equally dismal April, which saw the lowest fundraising totals in three years. The culprit? Analysts at Jefferies point to the Trump administration’s sweeping changes at the FDA, proposed budget cuts to the National Institutes of Health (NIH), and a fog of uncertainty around drug pricing reforms. As one Jefferies memo put it, “Current policy proposals and agency staffing reductions have created a shadow over biotech investments”.

This chill in the funding climate is particularly perilous for biotech, where the path from discovery to a viable drug is long, winding, and expensive. Most startups burn through cash for years before seeing a glimmer of profit, making steady funding as vital as air.

Venture Capital: Still Kicking, But More Selective

While public market funding has been battered—down a staggering 62% from last year—venture capital has proven more resilient, dipping just 12% so far in 2025. In fact, the size of venture rounds remains robust, with the median hovering near $100 million, fueled by a trend toward “megarounds” that give companies more runway to weather market storms.

Interestingly, much of this capital is flowing into companies with assets ready for clinical trials, often sourced from China, where drug development can be faster and cheaper. As Samsara BioCapital’s managing partner quipped, “You bypass four years of labor to develop a drug and demonstrate its efficacy in humans… you are starting right now with an actual clinical-stage asset”. This global shift reflects a broader search for safer, quicker returns in a risk-averse climate.

IPO Drought and the Rise of M&A

The initial public offering (IPO) window, once the lifeblood of biotech, has been stubbornly jammed. While IPO sizes have ticked up—median proceeds reached $140 million in 2025—most new listings are clinical-stage companies with seasoned management, and preclinical hopefuls are finding the door firmly shut.

With the IPO market in a holding pattern, many startups are opting to stay private longer, buoyed by large venture rounds and crossover investors who can bridge the gap to a public debut. Others are eyeing mergers and acquisitions (M&A) as a more reliable exit, especially as big pharma remains hungry for innovative assets.

The Human Cost: Belt-Tightening and Tough Choices

For those on the ground, the funding drought is more than numbers on a spreadsheet. Academic institutions are scrambling to cover overheads in the face of NIH cuts, and organizations like the Chicago Biomedical Consortium worry they won’t have enough projects to support new company formation. Meanwhile, some startups are being pushed toward drastic measures—liquidating assets and returning capital to shareholders—rather than braving the current headwinds.

A Glimmer of Hope?

Despite the gloom, there are hints that the worst could be behind us. Venture funding is stabilizing at pre-pandemic levels, and industry veterans are cautiously optimistic that clarity around U.S. interest rates and the November, 2025 elections could revive investor appetite later in the year. As one industry insider put it, “If I have the option not to care by staying down as a private company, then that feels like a pretty good option”.

For now, biotech’s journey remains unpredictable—a blend of scientific ambition, political crosswinds, and financial acrobatics. But if history is any guide, the sector’s knack for adaptation may yet turn today’s turbulence into tomorrow’s breakthrough.