Biotech Funding Plummets Amid Trump Administration Policies, Investors Grow Wary

The biotechnology sector is facing a significant downturn in funding, with recent data revealing a stark decline in investments. This trend, exacerbated by the Trump administration's policies, has sent ripples through the industry, leaving companies and investors grappling with an uncertain future.

Funding Decline and Its Implications

According to a recent analysis by investment bank Jefferies, biotech funding in May plummeted by 57% compared to the same period last year, amounting to just $2.7 billion. This follows April's dismal performance, which saw the lowest funding levels in three years at nearly $2.6 billion. The current funding environment falls 44% below the average seen over the past 12 months.

The impact of this funding drought is particularly severe for public biotechs. In May, these companies raised only $1.1 billion through initial public offerings, follow-on stock offerings, and PIPE deals. This figure pales in comparison to the industry's average monthly cash burn rate of $4.5 billion, highlighting a critical gap between available capital and operational needs.

Trump Administration Policies and Industry Uncertainty

Jefferies analysts David Windley and Tucker Remmers attribute the exacerbation of this funding decline to several Trump administration policies:

1. Unclear plans to lower U.S. drug prices
2. Mass layoffs at the Food and Drug Administration (FDA)
3. Proposed budget cuts for the National Institutes of Health (NIH)

These policies have created what the analysts describe as a "cloud over biotech investment." The long-term nature of biotech product development cycles, typically spanning 12-15 years, requires clarity on FDA regulation, drug pricing, and funding availability. The current policy environment has significantly undermined investor confidence in the sector.

Industry Response and Adaptations

The funding shortfall has prompted a range of responses from biotech companies:

1. Some firms, such as cancer drugmaker iTeos and immune system specialist Third Harmonic Bio, have announced plans to liquidate and return capital to shareholders.
2. Others, like Tempest Therapeutics, are exploring strategic transactions due to insufficient funds to complete studies on their main drug candidates.
3. Venture capital contributions have shown more resilience than public markets, with a 12% decline compared to 2024, versus a 62% drop in public market funding.

The uncertainty has also affected academic institutions and smaller biotech initiatives. David Yang from Lux Capital reported that some academic institutions are seeking funds to cover overhead costs in light of proposed NIH cuts. Michelle Hoffmann of the Chicago Biomedical Consortium expressed concerns about the ability to build new, small companies in the current climate.

As the biotech sector navigates these challenges, the industry faces a period of adjustment and reevaluation. The coming months will be crucial in determining how companies adapt to the new funding landscape and policy environment.