Biotech Markets Show Signs of Recovery, but Experts Urge Caution

The biotech industry is experiencing a period of cautious optimism as multiple market indicators trend positively for the first time in years. However, industry experts warn that this upturn may not signal a full recovery just yet.

Market Indicators and Funding Landscape

The S&P Biotech ETF (XBI) has climbed 43% in six months, and mergers and acquisitions (M&A) activity has resumed. Venture capital funding has picked up, particularly in the third quarter, with several megarounds attracting crossover interest. LB Pharma successfully broke the IPO stalemate in September, marking a significant milestone for the industry.

Maha Katabi, general partner for Sofinnova Investments, noted, "All of the elements that you would normally expect to drive a rally have converged and occurred over the last few weeks." However, she cautioned that many of these financings might be defensive moves in response to an unpredictable macroenvironment.

The funding landscape has shifted dramatically since the pandemic-era boom. Akshay Rai, principal at Premji Invest, observed, "I'm not really sure if biotech is back, but I think companies with good data will find capital available." This sentiment is echoed by other industry experts who emphasize the importance of solid data and advanced assets for attracting investment.

Concentration of Capital and Emerging Trends

The current rally is characterized by a concentration of capital, with larger checks going to fewer companies. Audrey Greenberg of Mayo Venture Partners highlighted this trend, pointing to massive raises like Kailera's $600 million series B for a Phase III obesity trial and Tubulis' $361 million series C for next-gen ADC therapies.

Obesity treatments, artificial intelligence, and oncology, particularly ADCs, have emerged as the big winners in this funding environment. Bill Gadless, founding partner of emagineHealth, described the situation as "an AI summer and a biotech winter, coexisting in the same ecosystem."

Early-stage funding remains challenging, with seed and series A volumes tumbling in the second quarter. However, there are signs that early-stage rounds, while still hard to come by, are increasing in size as investors write bigger checks to safeguard against market volatility.

The New Normal: Discipline and Value Creation

The third quarter of 2025 appears to have set a tone of discipline in the biotech industry. Companies now need to demonstrate clear value creation potential and have proximal clinical catalysts to attract funding easily. Viswa Colluru, CEO of AI biotech Enveda, which recently closed a $150 million series D, emphasized the importance of building relationships with investors well in advance of funding rounds.

The return of M&A activity is seen as a positive signal, not only for individual deals but also for recycling capital back into the industry. Notable acquisitions include Merck's $10 billion purchase of Verona, Genmab's $8 billion acquisition of Merus, and Pfizer's $4.9 billion upfront deal for Metsera.

As the industry adapts to this new normal, the focus remains on creating products that improve lives. Colluru summed up the sentiment: "My attitude has always been that if you create products that make the world a better place, then you will get to capture some of that value as a return. The signals for that have never been stronger from a pure bottom-up perspective, in terms of the exciting science that's going on today."