Biotech startups are facing a new threat

Biotech startups have faced a challenging financial environment for several years. But the Trump administration’s drastic changes in federal health and science policies have made the search for funding even worse.

Fundraising by venture capital firms that focus on biotech has been on a downward trajectory since 2018, when it peaked at $152.3 billion. By last year, total capital committed to biotech totaled just $12 billion, according to a recent PitchBook report. Only 30 biotech firms went public last year, down from an average of 54 per year from 2010 to 2020.

This year could end up worse. In June analysts at the investment bank Jefferies said that U.S. biotech funding in May was down 57%, to $2.7 billion, compared with the same month last year. April was even grimmer, with $2.6 billion raised, the lowest amount in three years and 44% lower than the average of the prior 12 months. 

Worldwide, venture financing for the biopharma sector dropped to $6.5 billion in the first quarter of 2025, compared to $8.1 billion a year earlier, according to GlobalData.

In a note to clients, Jefferies analysts wrote that “current policy proposals and agency staffing cuts have cast a cloud over biotech investment.” Companies in the sector and their investors, “want clarity on FDA regulation, drug pricing, and funding.” Consequently, they concluded, “the current environment is not conducive to biotech investment right now.” 

The Trump administration’s policies have created a broad range of challenges for biotechs, especially those startups that have yet to bring a product to market. Biotech drugs are created from human protein, typically large molecules targeted at a relatively small number of patients. 

Commercial development of these drugs takes 10 years or more at an extremely high cost, reflected in their high prices. It took almost 16 years and an estimated $750 million to $1.2 billion to develop Biogen’s Spinraza, approved in 2016 as the first treatment for spinal muscular atrophy, a rare genetic disorder that causes muscle wasting.The first year of treatment carries a list price of $750,000, and $375,000 for each year after that.

But before commercial development, biotech drugs typically emerge from pain-staking basic research funded by National Institutes of Health (NIH) grants that can take decades of investigation with no guarantee of success — the kind of research few companies can afford to do. It was NIH-financed research that first identified the cellular target that led to Merck’s Keytruda, a cancer drug that has been approved for more than 24 different indications since 2014, transforming oncology treatment.

The NIH may not be able to afford such research going forward, industry observers say. In the first four months of this year, the Trump administration cancelled or froze some $2.4 billion in NIH research and development grants and eliminated more than 1,200 jobs. In its 2026 budget proposal, currently pending in Congress, the White House is seeking a 40% cut in the NIH budget, and wants to consolidate the 19 NIH institutes and centers into eight.

The Trump administration has also eliminated 3,500 jobs at the Food & Drug Administration, which industry executives fear will almost certainly slow drug approvals.

On top of those changes, investors are concerned about proposed tariffs on medicines and the prospect of lower prices for biotech drugs, both of which are injecting more uncertainty into the sector. Trump announced in May that he would put in place what he calls a Most Favored Nation policy, aimed at bringing drug prices down to the same level charged in other countries, including biotech medicines. Details have yet to be released. 

Biotech firms and their investors knew as early as March that they may be facing trouble in Washington when news broke of the forced resignation of Peter Marks, the widely respected director of the FDA’s Center for Biologics Evaluation and Research, which oversees biotech drug approvals. Marks, who headed the division for the past nine years, was a strong supporter of vaccines, accelerated approval of innovative drugs, and regulatory flexibility for gene therapies. Biotech stocks nosedived on the news of Marks’ resignation. 

Evan Seigerman, an analyst at BMO Capital Markets, said in an investor note that Marks’ abrupt resignation is a “significant negative” for the biotech industry as it injects “a new wave of uncertainty at the FDA” and could signal changes in the FDA’s approach to drug approvals.. 

Late last month,110 CEOs, presidents, and chairpersons of biotech and pharma companies published an open letter to Congress saying that “damaging reductions in research funding provided to academic and federal scientists will immediately hurt the biotechnology sector.”

The letter said that the proposed reduction in federal research funding “will have a catastrophic effect on the advancement of biomedical and biotechnology capabilities in the United States.” They wrote that federal funding of scientific research is needed if the U.S. is to continue to lead the world in scientific innovation, knowledge, and health.

Their concerns were reflected in a recent survey of early-stage biotech executives by Incubate, a nonprofit formed by life sciences VC firms. The poll revealed that 92% of executives are concerned that investors are moving out of the biopharma sector to lower-risk industries, while 93% believe that reduced government funding for basic research will worsen outcomes for their companies. 

As John Stanford, the executive director of Incubate, said in releasing the report: “America’s biotech leaders are sounding the alarm.”