Emerging biotech

Even in the darkest of times, biopharmaceutical investors and executives usually express optimism in January, when thousands gather in San Francisco for the annual J.P. Morgan Healthcare Conference to discuss where the industry is headed.

A the 2026 meeting, though, they had reason to feel hopeful. Several indicators of sector health, from stock performance to deals and financings, turned positive in the second half of 2025. The generalist investors that abandoned biotech during a lengthy downturn tiptoed back. In a series of outlook reports late last year, multiple investment banks that follow the sector predicted that the run should continue, at least in the near term.

Still, sentiment could change quickly. Regulatory uncertainty still hangs over the sector, as does the threat of meaningful drug price reform. Initial public offerings haven’t yet picked up. Competition from China is pressuring U.S. biotechs to adapt. And vaccine makers are now facing a combination of shifting standards and hesitancy from the public that could imperil future research. 

Here are 5 questions biopharmaceutical companies face in 2026: 

Will biotech’s recovery last? 

For the biotech sector, 2025 was a tale of two halves. 

Early on, regulatory and geopolitical uncertainty slowed M&A activity and venture funding, both of which had appeared poised for a rebound. A spurt of initial public offerings in January and February was followed by a lengthy dry spell. Fears over Trump administration tariffs and drug pricing initiatives, as well as a seemingly unsteady Food and Drug Administration, made biotech appear an even riskier investment than usual. Even the "perception of instability is instability in its own way," Omega Funds founder Otello Stampacchia told BioPharma Dive in August.

But things have changed since then. The tariff and drug pricing policies revealed by the Trump administration proved manageable for drugmakers. Interest rates began declining. Several biotech companies produced positive study results and were either acquired or successfully launched their own drugs. “It's transitioning from a cash-guzzling sector to an increasingly profitable one,” Cantor Fitzgerald analysts wrote in an October note.

Along the way, dealmaking returned, as did investors’ willingness to fund private and publicly traded drug companies. In lockstep, the XBI, an index fund that analysts look to as an indicator of the sector’s health, skyrocketed. Since bottoming out in April, shares nearly doubled to trade at around $125 apiece in January, levels not seen since the pandemic. 

The sudden and strong momentum has stirred debate as to whether the rally will fade or continue in 2026.

In a year-end report, RBC Capital Markets analysts noted how ongoing regulatory volatility, now-bloated biotech valuations and crowding into certain therapeutic areas could make further gains tougher to achieve.

A slowdown in M&A, or run of negative readouts, would likely deflate stock values that are currently pricing in “much more optimism for success,” they wrote. “Less-than-perfect results” could bring valuations down “across the board.”

Still, there are reasons for optimism. In that same report, RBC analysts noted how the rise in private funding and positive performance from 2025’s small IPO class should fuel a long-awaited rebound in new biotech stock offerings in 2026. 

Venture financing levels should continue to climb, too, as investors funnel returns into their portfolio and maturing but still-private companies look to secure additional funds, said Monica Vnuk, Sanofi’s global head for partnering and business development. 

Many investors are looking for long-term bets that can hit value-boosting milestones as their drugs progress. High-quality companies will likely continue securing so-called megarounds worth $100 million or more, she added.

Absent a notable shift on drug pricing policies, then, biotech’s rise should continue “as long as the sector continues to reward strong clinical results,” William Blair research analysts wrote in a 2026 outlook report.

"There are headwinds, and some uncertainties remaining at the FDA, pricing and overall, just a very competitive space," Vnuk said. "But the good news is that there’s a lot of innovation.” — Gwendolyn Wu

Will the dealmaking upswing continue? 

The biopharma industry has its own tradition around this time of year: deal watchers prophesying a rise in mergers and acquisitions. Their logic typically goes one of two ways. Either M&A activity was so anemic in recent months that there’s nowhere to go but up, or it was so strong that the tides are bound to continue.

Heading into 2026, experts have adopted the latter rationale. BioPharma Dive data show that at least 28 acquisitions worth $50 million or more were inked from July through December, a substantial uptick from the 20 announced in the first half of the year and the 15 seen during the same six-month period in 2024. The prevailing thought is this pace will carry on.

“More deals are getting done,” said Shankar Musunuri, CEO and co-founder of gene therapy developer Ocugen, in a Deloitte report published last month. “That is good for the market overall and for a company like ours, because those of us on a growth trajectory require considerable capital.”

Deloitte, having surveyed biopharma leaders for its report, found 45% view M&A as a top near-term strategic priority. These leaders noted, too, a growing appetite to expand their research pipelines and bring in early-stage assets.

PwC, in its own recent report, highlighted how patent expirations will put $47 billion worth of pharmaceutical sales at risk over the next four years, which should press buyers to spend more of their “ample capital” and even consider offering heftier premiums.

“M&A will pick up in 2026, and the winners will be those who deploy capital with precision, speed, and foresight,” said Roel van den Akker, PwC’s US Pharma & Life Sciences Deals Leader.

To that end, greater uncertainty in the markets has pushed bankers and lawyers to get more creative with how they structure deals to get them over the finish line. Novo Nordisk, for instance, employed an unusual two-step payment scheme in its unsuccessful bid to usurp Pfizer and take control of obesity drug company Metsera.

Another key element of Novo’s — and Pfizer’s — proposals were “contingent value rights,” an old tool that dealmakers have recently leaned on to help buyers and sellers agree on price. In the back half of last year, about a third of the bigger-ticket deals tracked by BioPharma Dive made use of CVRs. — Jacob Bell

How will the U.S. respond to China’s biotech ascent?  

Over the last few years, China’s fast-growing biotechnology sector has reshaped the world’s biopharmaceutical pipeline and, in the process, challenged the U.S.’s long-held advantage. 

A combination of lower development costs, regulatory flexibility and government support have birthed a homegrown ecosystem of companies that can quickly catch, and in some cases speed ahead of, their U.S. counterparts. Those companies have assembled a vast inventory of drug prospects for pharmaceutical companies to pluck and venture investors to build new companies around. 

BioPharma Dive data shows more than 60 deals were struck last year between China-based drugmakers and U.S. or European companies. Analysts from the investment bank Jefferies estimated, at one point, that those deals involved a full third of the industry’s licensing spending in 2025. More and more of those drugs aren’t just superior versions of existing medicines, as has been the case in the past. 

“China continues to adapt and evolve very quickly,” said Vnuk, of Sanofi. “There’s still a lot of ‘me-too’s,’ but they're good quality ‘me-too’s,’ and now we're seeing more first-in-class [drugs] and significant potential for best in class.”

The dramatic shift has triggered alarm bells among U.S. drugmakers and lawmakers in Washington, D.C. Multiple bipartisan commissions warned Congress about China’s fast progress and growing influence on U.S. drug development. At a congressional hearing in November, John Crowley, the head of Biotechnology Innovation Organization, predicted the U.S. could lose its edge “within two to three years” without drastic changes. Pfizer CEO Albert Bourla has publicly campaigned for government support. 

That support hasn’t yet meaningfully materialized. Though the FDA has taken steps to streamline some areas of drug development, China still has significant advantages in costs and regulatory speed. A reported draft executive order designed to stymie in-licensing deals from China hasn’t been announced. Tariff threats from the U.S. have “barely dent[ed]” Chinese drugmakers, too, Jefferies analyst Cui Cui wrote in September. Trump administration cuts to scientific research and delays in grant funding haven’t helped matters, either. 

Some, then, suggest that the U.S. should respond more amicably. An expert panel hosted by Cantor Fitzgerald analysts in September argued for embracing “hybrid models” of co-developing drugs in different geographies, enabling companies in the U.S. and China to capitalize “on their respective advantages.” Biotech’s future “may not hinge on where innovation originates,” the Cantor team wrote, but “how we build, share and scale it across borders.” 

Vnuk, of Sanofi, has a similarly upbeat take. China’s emergence “is an opportunity for pharmas to replenish their pipelines” and for international investors to back “another set of companies in another geography.” 

“I look at it through a positive lens,” she added. — Ben Fidler

Will the FDA tumult subside? 

Last year brought unusually dramatic upheaval to the FDA. 

The U.S. biotech industry’s chief regulator cycled through several heads of its main drug review offices and withstood mass layoffs and resignations. Commissioner Martin Makary and top deputy Vinay Prasad came under fire for a reportedly “toxic” work environment, continual staff departures and slipping review timelines. They’ve also bypassed normal federal rulemaking channels in outlining new agency policies and championed exceptionally fast development standards for some medicines, while simultaneously demanding a dramatically higher bar for others. 

Makary, for example, reportedly drew the ire of longtime FDA oncology leader Richard Pazdur for a program that awarded special vouchers to drug programs aligning with certain “national priorities.” Some lawmakers have criticized that program as a tool for currying political favor, and published reports have indicated that the White House has been involved in selecting winners. Likewise, Makary has also proposed that a single Phase 3 trial, rather than two, could be used to gain approval for most drugs, a loosening of standards that could raise the risk of safety issues not being identified before a drug is broadly used.

Prasad, meanwhile, has directed the main drug office he heads to heighten safety and efficacy standards for certain treatments under his purview. Among the changes include additional testing requirements for vaccines and controlled trials for cancer cell therapies, which could discourage further development of those products. He’s also overruled agency reviewers multiple times and reportedly intervened in other cases in which he’s been skeptical of company data. 

Biotechs faced other surprises, too. Pazdur retired only weeks after being tapped to lead the agency’s other top drug office, and has since been replaced by an agency outsider, Tracy Beth Hoeg. Makary has been on the hot seat. Prasad is leaving the agency by the end of April. And several companies have reported shifts in regulatory guidance that have frustrated Wall Street, leading some analysts to call the FDA as unpredictable as it’s ever been. 

Biopharma’s market run, then, could hinge on how stable the FDA proves to be. In a recent report, Leerink Partners analysts noted how “leadership turnover, policy uncertainty and operational disruption” are creating “unpredictable risk” for the sector. Agency instability could direct M&A interest more heavily toward companies with more advanced drug programs, they added. 

The RBC team warned that more approval delays could be ahead, while more “flip-flopping” on drug submissions and politically-influenced regulatory conditions may add to the ongoing perception of unpredictability. “This is all clearly weighing on investors,” they wrote, with nearly half of those polled by the firm citing the regulatory climate as the “biggest” issue facing the sector. — Jonathan Gardner

How will vaccine policy change? 

Since being appointed the head of the Department of Health and Human Services last year, Robert F. Kennedy Jr. has weakened support and access for many routine vaccinations. That plan could accelerate further in 2026, with potentially dire consequences for public health. 

Kennedy last year abruptly fired all members of a key Centers for Disease Control and Prevention committee that guides U.S. vaccine policy and replaced many panelists with vaccine skeptics or people without relevant experience. That group went on to soften COVID shot endorsements, recommend splitting MMR and varicella immunizations and called for a preservative that’s long been a target of anti-vaccine groups to be taken out of flu vaccines. Finally, the panel, known as ACIP, dropped in December a universal recommendation that newborns be vaccinated against hepatitis B — a longstanding precedent credited with nearly eliminating, in the U.S., infections known to lead to cirrhosis or liver cancer later in life.  

The FDA, too, has shifted its standards. In 2025, the agency set stricter approval frameworks for COVID vaccines and issued narrower clearances for their use than in past years. Its leaders have also reportedly been digging through the vaccine safety monitoring system VAERS to claim vaccination caused the deaths of multiple children. The results of that investigation could be used to justify substantive changes to the way vaccines are regulated, according to a leaked memo from top vaccine regulator Prasad. 

ACIP’s rulings were challenged by several medical organizations and ignored by certain states and insurers. Ousted members even called for a separate entity to be formed, citing the “fundamental distrust” the group has engendered. The FDA’s use of VAERS has also drawn blowback from nearly every living agency commissioner, and hasn’t yet produced credible evidence.

Still, the moves have exacerbated growing doubts about immunizations that have steadily eroded uptake and triggered outbreaks of preventable diseases. And they’ve indicated that, going forward, there may be a “tightening regulatory bar” for vaccines, which could negatively impact development and shift emphasis towards drug treatments, RBC analysts wrote in their December report. 

More uncertainty is ahead. President Trump in early December demanded a review of the childhood immunization schedule. ACIP a few weeks later raised concerns about the use of aluminum as an immune-boosting adjuvant, and the safety of giving multiple shots at once — despite the lack of meaningful data that either causes harm. At the very start of 2026, federal health officials scaled back the number of recommended shots for children going forward, a drastic policy shift made outside the typical rigorous decisionmaking process. And within months, that decision and others made by the reformed ACIP committee were frozen by a federal court, leaving unclear the future direction of vaccine policy in the U.S. 

“We see policy changes/public commentary from the administration continuing to erode public trust and exerting pressure on vaccination rates through the coming election season and over the next several years,” Leerink’s Mani Foroohar wrote in a December note to clients. — Delilah Alvarado

The irony isn’t lost on Alexis Borisy. The famed biotechnology investor has, all this week, at the industry’s biggest event, been taking meetings from a downtown hotel suite, on a glossy, powder blue couch that has an odd resemblance to a drug capsule. I guess it really does, he said with a booming laugh.

Borisy has co-founded handfuls of companies, including his current passion project, the venture capital firm Curie.Bio, and the cancer drugmaker Revolution Medicines, which is rumored to be in talks for a deal worth tens of billions of dollars. He’s also been coming to the J.P. Morgan Healthcare Conference for decades, since it was run by Hambrecht & Quist. This year, for the first time in several, he found attendees significantly more optimistic. They have reasons to be.

A historic downturn in the biotech sector that began in late 2021 is finally showing signs of subsiding. Acquisition activity spiked in the back half of last year, when at least 28 deals worth $50 million or more were announced.

Money has also started to pour in again. HSBC’s Innovation Banking division counted 157 venture capital deals, totaling $7 billion, in just the fourth quarter. Taking a wider look, RBC Capital Markets tallied $22 billion in biotech investing in the last three months of 2025, which was “on par” with levels seen at the peak of the 2020-2021 bubble. So far, the momentum has continued into 2026. “So much for dry January,” wrote Raymond James analysts, who highlighted “big time biotech inflows” of $1.2 billion in the first full week of the new year.

“We’re in a good place right now as a sector,” said John Maraganore, the founding CEO of Alnylam Pharmaceuticals and former chairperson of biotech’s biggest trade group.

Yet, alongside the excitement is an undercurrent of unease — that this rebound may be fragile, and may not continue as hoped if the industry doesn’t play its cards right. 

The tension could be felt throughout J.P. Morgan. There was real frustration when, on the conference’s opening day, no major deals came. Brad Loncar, another prominent biotech investor turned media analyst, lamented the “slowest JPM for news in a long time.” Others appear to agree. The XBI, a closely watched biotech fund, ended the four-day meeting essentially flat.

“I think we’re in the early innings of the upswing,” Borisy said. But “we don’t know for sure. Because when you're down in the trough, you can have false dawns, and you can bounce along there for a long period of time.”

What is clear is that experts see a push and pull to all the biggest factors affecting the industry. 

The recent and rapid rise of China’s biotech ecosystem, for example, has raised alarm bells that the U.S. may lose its dominant position in the life sciences. But some say this growing competition could also positively affect U.S. drug developers by forcing them to become more nimble and efficient.

The Food and Drug Administration is also coming off one of, if not the most tumultuous years in the agency’s history. But the FDA has shown a desire to speed drugs along, too. Drugmakers have also navigated the commotion well, and have shown an aptitude for negotiating with the Trump Administration on a broader scale.

Even so, there’s angst that recent change-ups among the FDA’s top ranks last year could soon come to roost. The RBC team conducted a recent poll among biotech investors and found that more than half pointed to the unpredictable regulatory climate as the sector’s biggest issue. 

“All of us are hoping that things settle down [and] we get a more consistent agency,” said Maraganore. “If we see delays, if we see inconsistencies, if we see lack of stability at the FDA, then that would be a cause for more concern. But, again, I'm optimistic.”

Meanwhile, public markets that largely dismissed drug startups for the last few years now seem poised to embrace these companies again. That may have a knock-on effect on dealmaking. A fresh source of funding could make smaller biotechs less reliant on big pharma collaborations, or it could accelerate research programs and make them more attractive to potential partners.

“Hopefully, if the IPO market opens more in 2026 … that won't mean the partnership model dries up,” said Adam Keeney, head of corporate development at Biogen. “It just means these companies could be taken to more advanced stages before partnering, which is good for us as well.”

“We've still got some way to go before we're talking about a bubble,” Keeney added.

If the rebound does persist, industry backers will be under pressure to not repeat mistakes made at the height of the last hype cycle. During that period, it wasn’t uncommon for young drug companies with fantastical goals to go public, even if their plans to develop medicines and build a business around them were fuzzy.

Many of those companies then suffered greatly when the market corrected, frustrating public investors and causing many of the “generalists” that had fueled the sector’s run to turn away from biotech. Particularly hard hit were cell and gene therapy developers, as well as “platform” companies that promised to create an array of new medicines with cutting-edge technologies.

“You can't get caught up in the moment,” said Andy Plump, head of research and development at Japan’s largest drugmaker, Takeda Pharmaceutical. Platform companies, for example, were “all the rage” not long ago, but “the reality is platforms often fail. So the exuberance — it's just not worth it,” he said.

That sentiment has played out in the public markets of late. Last year, all but one of the companies to price IPOs had drugs in Phase 2 testing or later at the time of their offerings. One, Metsera, just got bought in a $10 billion deal. 

Some could argue this performance suggests young drug companies have become better and more efficient, and their backers more disciplined. The “dark winter,” as Maraganore describes the prolonged downturn, “resulted in a Darwinian survival of the fittest.” 

“The private companies that remain have a very, very strong vintage,” he said. “I’m of the view that these initial companies that do go public may be some of the best we've seen in a long time.”

With biotech being so cyclic, newfound success has the potential to stir the formation of another bubble. Momentum investors, seeing strong clinical data or stock spikes, rush in and further bloat valuations. “The net result, given an industry that's driven by animal spirits, is going to be an overcapitalization and a hangover,” according to Borisy.

Some firms are already seeing troubling signs. In a December report, RBC analysts warned that the XBI’s lengthy run in 2025 had left many companies with stock values that priced in “much more optimism for success.” Further growth might be tougher to achieve, they wrote, and results investors view as “less-than-perfect” could cause share prices to tumble. 

Keeney, of Biogen, said “a little bit of collective responsibility” will be needed to avoid this outcome. “If we could just stay disciplined, more money can go into a targeted number of companies that have the best opportunities and the best chance of success.”

Earlier-stage investors appear to be doing just that. “Mega” fundraising rounds worth $100 million or more have become commonplace over the past couple years, as larger and slower-moving investor groups have coalesced around fewer companies that stay private for longer. These bets have been seen as “safer.”

While venture capitalists claim they’ve learned their lesson from the last boom-and-bust era, not everyone is so convinced.

Borisy, acknowledging that investors aren’t a monolith, couldn’t help but let some disbelief show through.

“You can write down that I gave an eye roll,” he said.

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By Thermo Fisher Scientific

Cell and gene therapy has spent decades being described as “emerging.” That label no longer fits. The field has delivered transformational science and real patient impact. Now, the challenge is different: turning CGT platforms into sustainable, scalable, reimbursable therapeutics that can reach more patients with greater speed and predictability.

At this year’s American Society of Gene and Cell Therapy (ASGCT) Annual Meeting, five industry leaders discussed how the field is navigating its most pressing challenges and what will define its next phase of growth.

Keith Wonnacott, SVP of Regulatory Affairs at Lexeo Therapeutics, put it plainly: “We’ve been calling it a novel, up-and-coming field for 25 years… it’s time to transition… to a product class that is delivering therapies to patients.”

That transition is the central crossroads for biopharma therapy developers today. Scientific innovation remains important, but it is no longer sufficient on its own. The next leaders will be those who can integrate great science with clinical strategy, manufacturing foresight, regulatory discipline, payer readiness, and market realism from the earliest stages of development.

Alina Lelic, Global Market Development at Thermo Fisher Scientific, framed the moment around sustainability and speed. The field has made “phenomenal” progress in R&D, she noted, but now must focus on “sustaining the field in terms of the development and getting those therapeutics to the patients quicker.” For developers, that means building programs designed not only to work in the lab, but to withstand the pressures of scale-up, funding scrutiny, regulatory uncertainty, and commercial adoption.

The science is also moving rapidly. Erik Digman Wiklund, CEO of Circio, pointed to a shift beyond first-generation approaches, including in vivo CAR, engineered AAV capsids, and technologies that can enhance potency while reducing toxicity. “It’s an exciting few years we’re going to have ahead,” he said, as next-generation approaches bring “some rebirth to the CGT space.”

But rebirth will require cost discipline. Lena Winstedt, VP and Head of Scientific Affairs at Hansa Biopharma, emphasized that manufacturing remains too expensive and directly limits the indications developers can pursue. “So much of the price tag on each treatment is actually manufacturing,” she said. “If it would be cheaper to produce… we could also look at other indications. More common indications, for example.”

That reality should influence development decisions early. Manufacturing cannot be treated as a late-stage operational problem. Developers need to think about titer, yield, release testing, scalability, supplier partnerships, and fit-for-purpose CMC strategy while programs are still taking shape. As Lelic noted, early conversations with technology, materials, and reagent providers can help companies consider scale-up sooner and put the right methodologies in place.

The same early discipline is needed in clinical and commercial planning. Karen Malone, CEO of GeneScape, highlighted the importance of better market data and more realistic investor expectations. Looking back at early gene therapy launches, she noted that what may be called a commercial disappointment can look very different when measured against the true treatable population. “We need to match those expectations for the investors,” she said. “We’ve learned so many lessons in the last five, six years.”

For developers, that lesson is powerful: know the patient population, understand the addressable market, and align expectations before pivotal investment decisions are made. Patient data, natural history studies, and patient advocacy organizations are becoming strategic assets, not supporting details.

Regulatory strategy also remains central, especially in a period of uncertainty. Wonnacott acknowledged disruption and unpredictability, but stressed that “the pathways exist, and when the science is excellent and compelling, there’s going to be a path forward.” His broader point was that data packages must speak not only to regulators, but to every stakeholder who determines whether a therapy succeeds.

That includes payers. Winstedt pointed to hemophilia as a cautionary example, where approval alone did not guarantee uptake. Developers must engage earlier with reimbursement realities and design programs that can demonstrate value beyond regulatory efficacy.

Execution, then, becomes the differentiator. Malone described the tension between enrolling patients quickly and selecting the right patients for a meaningful trial. Wonnacott urged companies to plan for “catastrophic success” from the beginning, because for many gene therapies, transformative clinical impact is what will justify both regulatory acceleration and commercial viability. Wiklund added a practical reminder: “Keep it simple. Get the cost down.”

Looking ahead, the panelists converged on a clear message: the next phase of cell and gene therapy will belong to organizations that are flexible, data-driven, operationally prepared, and commercially grounded.

For biopharma therapy developers, the opportunity is immense, but the bar is higher. The future will not be won by science alone. It will be won by teams that build for patients, regulators, payers, manufacturers, and markets from day one.

About Thermo Fisher Scientific

Thermo Fisher Scientific collaborates with biotech and advanced therapy developers across the product lifecycle, from early research and process development. Through integrated products, services, and technical knowledge, we help reduce risk, accelerate timelines, and support confident decision-making at key development and regulatory milestones. Our genetic analysis and molecular biology technologies enable rapid product verification and characterization, helping bring high-quality, life-changing therapies to the market faster. To learn more about how our genetic analysis tools can support your Biopharma therapy development, or to connect with a Thermo Fisher representative, contact us here.

© 2026 Thermo Fisher Scientific Inc. All rights reserved. All trademarks are the property of Thermo Fisher Scientific and its subsidiaries unless otherwise specified.

When BridgeBio Pharma prepared to sell the heart drug Attruby on its own, investors and analysts were skeptical. The San Francisco-area biotechnology firm was competing with two large companies with experienced sales forces, and its chances of success seemed slim.

Optimistic investors believed BridgeBio, at best, could rake in $100 million in sales for the year. But Attruby easily blew past those projections, earning $362 million in 2025 and proving BridgeBio a viable threat to its bigger rivals.

Now, those analyst notes — the skeptical and the optimistic — are framed in the background of a room in BridgeBio’s San Francisco office, where Matt Outten, its chief commercial officer, sometimes takes meetings. “When people come in, they see the good ones, and also the ones where people are like, ‘you could never do it,’” Outten told BioPharma Dive. “The nice thing is, I'm starting to have to replace the early notes with the positive ones.”

Biotechs spend hundreds of millions, if not billions, to develop a medicine. Most will fail, and those that don’t often end up selling the rights to their drug — or the entire firm — to a partner with the budget and sales force to launch their product. Investors historically bet on those deals and against the companies that try to market their own drugs, a “short the launch” approach built on decades of skepticism.

But over the past few years, more have grabbed at the proverbial brass ring. Among them are companies like Argenx, BridgeBio, Insmed and Madrigal Pharmaceuticals, which have all proven they can sell medicines better than investors expected. In the process, they’ve joined the ranks of the sector’s more valuable companies, rewarding the shareholders who stuck around for the journey.

“For companies with significant products, investors are becoming more willing to tolerate slower launch ramps,” said Michael Rome, a managing director at Foresite Capital.

Biotech companies make many tough strategic decisions early on, from which diseases to target to how to finance themselves. But as they mature, they’ll all confront the critical choice of whether to sell their own drugs.

Forging ahead and succeeding could offer big financial upside, enabling a young drugmaker to grow into a large and profitable company. Yet that’s an expensive undertaking that requires patient investors.

One company facing this question is Alumis, which will apply later this year for approval of envudeucitinib, a competitor to Bristol Myers Squibb’s psoriasis treatment Sotyktu. The biotech’s shares have more than quadrupled since it revealed data showing its drug may be not only superior to Sotyktu, but among the best in an emerging class of therapies. That drug is also in testing for other autoimmune conditions such as lupus.

At peak, envudeucitinib could bring in $1.7 billion in annual sales in psoriasis alone, according to one forecast by the investment firm Leerink Partners. But bringing the drug to market would be a costly endeavor, as footing the bill for direct-to-consumer advertising is a difficult expense for a company of Alumis' size to handle, said Martin Babler, Alumis’ CEO.

To “maximize that opportunity,” Babler said, “that is more likely going to be done with a partner than on our own.”

LB Pharmaceuticals is making similar calculations. CEO Heather Turner told BioPharma Dive in January that the company, which has a schizophrenia drug in late-stage testing, is weighing whether it can market its own medicines. In securities filings prior to going public, LB made the case that its drug could outperform approved schizophrenia treatments, among them Bristol Myers’ Cobenfy. "We think it is a nice, large market opportunity, which helps, but it is one in which a biotech company could credibly launch,” Turner said.

Turner was previously the CEO of Carmot Therapeutics, an obesity specialist that eventually sold to Roche for $3.1 billion. Had that company considered marketing its own drugs, “people probably would have laughed at me,” she said.

Still, some are considering doing so. One is Kailera Therapeutics, a well-funded obesity drugmaker that recently raised one of the sector’s biggest-ever initial public offerings. It's advancing a portfolio led by ribupatide, a weight loss treatment that it’s hoping will compete with Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound. CEO Ron Renaud — who has led and sold three other biotechs — previously said the company built into its hiring plans the expertise needed to lead future drug launches. At least as of now, the company intends to sell its own medicines one day.

“We’ve got a chief medical officer who has developed blockbuster cardiovascular drugs in the past,” Renaud said. “We have that experience internally. So the idea is to take this as far as we can with the skill sets that we have.” 

Companies with such ambitions have recent positive examples indicating that kind of plan can yield a stable, profitable business investors will buy into. The drug Ohtuvayre was off to an exceptionally fast launch in a kind of lung disease when its developer, Verona Pharma, was acquired by Merck & Co. for $10 billion in 2025. Argenx commands a more than $50 billion market cap thanks to the sales growth of the immune drug Vyvgart. Others, such as Insmed and BeOne Medicines, are approaching similar valuations thanks to rapidly growing franchises.

Other biotechs are showing they might reach those heights, too.

Madrigal surprised investors with the early sales trajectory of Rezdiffra, the first drug approved for metabolic dysfunction-associated steatohepatitis, or MASH. Prior to that clearance, there was skepticism about Rezdiffra’s benefits and the market potential for MASH drugs.

Yet Madrigal’s first-mover advantage and strong uptake caused sales of Rezdiffra to outstrip analysts’ expectations. The drug reached $180 million in its first year on the market and almost $1 billion in 2025. Along the way, Madrigal’s value skyrocketed. Even with a double-digit percentage stock decline this year, the company is worth around $12 billion.

BridgeBio, meanwhile, brought a drug for the progressive heart condition transthyretin amyloidosis cardiomyopathy to market when one, Pfizer’s tafamidis, was already available and another, from Alnylam Pharmaceuticals, was soon following. But BridgeBio compiled data suggesting its drug might be more potent than tafamidis and priced the therapy at a discount. It also adopted a series of marketing strategies to “lower the bar” for access, BridgeBio CEO Neil Kumar previously told BioPharma Dive.

“It takes some bravery and Wild West attitude to think that you can do it even when so many other people have not,” BridgeBio’s Outten said.

The uptake of Attruby has accelerated in 2026. BridgeBio is now worth more than $15 billion.

These stories, some analysts say, represent a maturation for the sector that may have been accelerated by a tough environment. Up until late last year, biotech suffered through a lengthy pullback in funding and dealmaking that forced many developers to spend more frugally to survive, said RBC Capital Markets analyst Luca Issi.

According to Issi, these kinds of cost-controlling maneuvers have better prepared companies to profitably sell medicines — positioning them to reward shareholders without agreeing to a takeover.

"Most biotech companies graduate middle school and get bought," Issi said. "These guys graduated college and they have their own jobs. They got their PhDs and MDs."

Mergers and acquisitions are still a core part of the biopharmaceutical sector. Large pharma companies often snap up biotechs to get ahold of new drugs that can grow revenue or offset patent expirations. This year, close to 40 buyout deals have already been struck, the majority of which were worth at least $1 billion, according to BioPharma Dive data.

An April report from Stifel described the fast start as the sector’s second most active year, ever, for M&A.

Issi contends that biotech’s evolution could, at minimum, give younger firms more leverage in deal negotiations. But others also note how there are now enough recent examples of drugmakers successfully launching new medicines to credibly argue that more should try.

“It’s taken longer than I initially thought it would take, but it's a good thing,” said Mani Foroohar, an analyst at Leerink. “The universe of companies that people think of as ‘grown-up,’” he added, “is expanding.”

Those success stories could also make biotech more appealing to the “generalist” investors that have long seen biotech as a crapshoot, RBC’s Issi said.

“There's this perception from generalists that biotech is just like playing in a casino, like you gamble on who gets bought,” Issi said. “But the broader sector is in much better shape because we have more companies that have self-sustainable businesses.”

The fast rise of China’s biotechnology sector has put U.S. drugmakers and the investors who back them in a difficult position.

A flexible regulatory environment and low development costs have propelled a trove of promising drug prospects U.S. companies and venture capitalists can pluck and quickly advance. But striking deals for those therapies could further erode the U.S.’ long-held edge.  

So far, biotechs and their backers have overwhelmingly chosen the former option. Over 60 licensing pacts with Chinese companies were struck last year, and roughly 40 more have followed in 2026, according to BioPharma Dive data. They’ve come despite alarm bells from lawmakers on Capitol Hill, as well as top biotech and pharmaceutical executives. The U.S. has yet to respond with concrete regulatory incentives to level the playing field. 

Yet some investors, like SR One CEO and managing partner Simeon George, view the situation as a positive for the world's biotech ecosystem. The heightened competition is leading to safer bets and fewer gambles on companies built around “half-baked ideas,” he said in an interview. 

A handful of companies George's firm has recently backed serve as clear examples. Among them are AirNexis Therapeutics, which is built on a lung disease drug discovered in China, and Corxel Pharmaceuticals, which is advancing an obesity medicine licensed from a Chinese biotech.

“The ecosystem is more global and more competitive,” George told BioPharma Dive in a recent interview. “That is not a threat to U.S. science. It is a forcing function for higher-conviction investing.”

George spoke with BioPharma Dive about how the explosion of new drug candidates from China is shifting the way venture capital firms are approaching newer biotech investments. 

This interview has been condensed and lightly edited for clarity.

BIOPHARMA DIVE: What do you make of the growing presence of drugs coming from China?

SIMEON GEORGE: It’s good to have competition. It’s great that China is doing what it's doing, but we have to step up our game. There’s plenty of venture firms that have reloaded, they’ve raised fresh capital for doing this work. In some instances, they’'re raising more capital for each round. We’re also doing that, and that's partly because we don’t want to come back to the market with a story that’s half-baked. We want to get to something that truly is a definitive milestone, and we want to fund for those milestones. 

How is the availability of drug research in China affecting the way biotech venture firms are deploying capital? 

GEORGE: China is no longer a lower-cost outsourcing market for biotech. It has become a genuine source of high-quality assets, fast clinical execution, and increasingly sophisticated drug development. That changes how capital gets deployed at every stage.

At the company creation stage, the bar for building around translational science has risen materially. At the venture stage, the shift is toward strong biological validation and a clearer path to decisive human data. The industry is moving away from long-duration stories without obvious catalysts.

At the growth stage, execution speed is now a genuine competitive advantage. The ability to generate differentiated clinical data efficiently and operate across geographies is no longer a nice-to-have.

What is the impact of that on the more traditional avenue of translational research coming out of university labs in the U.S.?

GEORGE: I do not think it matters less. Truly novel science from top academic labs may become more valuable precisely because commodity biology is now available faster and cheaper elsewhere. What changes is the standard of differentiation required to justify long-duration venture capital. Firms are becoming much more selective about where they deploy that capital when there are faster, more capital-efficient paths to clinically validated biology elsewhere in the world.

How is the presence of all these less risky assets in China affecting investments in other early-stage startups? 

GEORGE: We need a healthy ecosystem of new companies and innovators at the seed stage to build up plans of what’s going to become the mid-to-late stage [companies] and IPOs. So we need to be sufficiently courageous to continue to invest in early-stage companies. You’ve got to be doing something innovative. It has to be different. It has to pretty clearly capture attention. You might not have the proof points today, but “these are the next critical experiments and steps, this is the time frame, this is the capital required to get to that.” The whole package needs to be tight. 

It needs to probably acknowledge some of the big issues that everyone is dealing with. China — how are you going to deal with competition? AI, most favored nation drug pricing, all the things that are on people's minds. To the extent that what you're building has some level of read-through into those categories, you should have a way to defend and explain what helps you.

It's an entrepreneurial ecosystem. There's a level of Darwinian selection here.

What needs to happen in the sector to draw more investment into riskier science?

GEORGE: We need to see this courage pay off. Whether it's early M&A, partnerships or investors that are willing to come in in the next round and pay out because we've taken the risk, we've discharged it to some degree. Because if that isn't happening, then the question is “why is the first investor taking all that risk?” If no one’s going to pay for it, [and] pharma isn’t engaging, then that market cycle gets broken.

What stops pharma from cutting out the middleman and going straight to Chinese companies for assets? Is that a concern for investors like you?

GEORGE: Not really a concern. This question arises in every innovation-driven sector with large incumbents. Pharma sees the same biology, the same platforms, the same opportunities — and has far more resources. So why does the biotech startup ecosystem exist at all?

Because large organizations cannot move fast, take concentrated risk, or follow the science without running it through layers of bureaucracy and committee. Those constraints are structural, not fixable. It is why pharma acquires rather than builds.

GSK understood this. They acquired Aiolos Bio — built around a Hengrui [Pharma] asset — before striking the direct deal. The venture-built wrapper was part of what they paid for. And direct access only works with large, established players. Truly early-stage opportunities are not easily available or accessible for licensing. They require someone willing to build and move before the opportunity is obvious.

If anything, GSK paying $500 million upfront for a Chinese-originated COPD asset in the same pathway AirNexis is pursuing tells me pharma urgently wants to own this space. That is validation, not a warning.

Soon after starting a new biotechnology company, David Li realized he needed to rethink his strategy. 

Li had been conducting the competitive research biotech entrepreneurs typically undertake before soliciting investment. He drew up a list of drug targets that his startup, Meliora Therapeutics, could pursue and checked them against the potential competition. 

Li quickly found that biotechs in China were already working on many of the targets he had on his list. Curious, he visited Shanghai and Suzhou and witnessed a buzzing scene of startups set frenetically to task. 

“They're not really thinking about the U.S. at all. They're just trying to create more value and stay alive to differentiate themselves from the next guy in China,” he said. “They're moving quick. There are a lot of them and they're just quite competitive.”

Li’s experience is illustrative of a trend that could pressure biotech companies in the U.S. and alter their drug development strategies. More and more, large pharmaceutical companies are licensing experimental drugs from China. Venture companies are testing similar tactics by launching new U.S. startups around compounds sourced from China’s laboratories. This shift has been sudden, with licensing deals ramping rapidly over the past two years. And it is occurring even as the shadow of U.S.-China competition within biotech grows longer. 

Executives and investors interviewed by BioPharma Dive share Li’s outlook. They expect such deals will accelerate and, in the process, force U.S. biotechs to work harder to stand out. 

“We’ve been warning people for a while, we're losing our edge,” said Paul Hastings, CEO of cell therapy maker Nkarta and former chair of the U.S. lobbying group the Biotechnology Innovation Organization. “Innovation is now showing up on our doorstep.”

There’s perhaps no clearer example of this than ivonescimab, a drug developed by China-based Akeso Therapeutics and licensed by U.S.-based Summit Therapeutics. Recent results from a lung cancer study run in China showed ivonescimab outperformed Keytruda, Merck’s dominant immunotherapy and currently the pharmaceutical industry’s most lucrative single product. 

The finding “put a huge focus on what’s happening in China,” said Boris Zaïtra, head of business development at Roche, which sells a rival to Keytruda. 

Fast-moving research

The deal boom has roots in efforts by the Chinese government to upgrade the country’s biotech capabilities by upping investment in technological innovation. In the life sciences, the initiative provided funding, discounted or even free laboratory space and grants to support what Li described as a “robust ecosystem” of biotechs. 

The results are clear. Places like Shanghai and Suzhou are home to a skilled workforce of scientists and hundreds of homegrown companies that employ them. Science parks akin to the U.S. biotech hubs of Cambridge, Massachusetts and San Francisco have sprouted up. 

Chinese companies generally can move faster, and at a lower cost, than their U.S. counterparts. Startups can go from launch to clinical trials in 18 months or less, compared to a few years in the U.S., Li estimated. Clinical trial enrollment is speedy, while staffing and supply chain costs are lower, helping companies move drugs along more cost effectively. 

“If you're a national company within China running a trial, just by virtue of the networks that you work within, you pay a fraction of what we pay, and the access to patients is enough that you can go really fast,” said Andy Plump, head of research at Takeda Pharmaceutical. “All of those are enablers.” 

And what they’ve enabled is a large and growing stockpile of drug prospects, many of which are designed as “me too better” versions of existing medicines, analysts at the investment bank Jefferies wrote in a December report. Initially focused in oncology, China-based companies are now churning out high-quality compounds across multiple therapeutic areas, including autoimmune conditions and obesity. 

“There was a huge boom of investment in China, cost of capital was very low, and all these companies blew out huge pipelines,” said Alexis Borisy, a biotech investor and founder of venture capital firm Curie.Bio. ”Anything that anybody was doing in the biotech and pharmaceutical industry, you could probably find 10 to 50 versions of it across the China ecosystem.”

Me-toos become me-betters

For years now, Western biopharma executives have scouted the pipelines of China’s biotech laboratories — exploration that yielded a smattering of licensing deals and research collaborations. Borisy was among them, starting in 2020 a company called EQRx that sought to bring Chinese versions of already-approved drugs to the U.S. and sell them for less. EQRx’s plan backfired amid scrutiny by the U.S. Food and Drug Administration of medicines tested only in people from a single country.

Now, however, the pace of deals has accelerated rapidly. There are a few reasons for this. According to Plump, one is the improving quality of the drug compounds being developed. The “me toos” are becoming “me betters” that could surpass available therapies and earn significant revenue for companies — like BeiGene’s blood cancer drug Brukinsa, which, in new prescriptions for the treatment of leukemia, overtook two established medicines of the same type in 2024. 

Another reason, Plump said, is that China-based companies are becoming more innovative, studying drug targets that might not have yet yielded marketed medicines, or for which the most advanced competition is in early testing. Li notes how Chinese companies are going after harder “engineering problems,” like making complex, multifunctional antibody drugs, or antibody-drug conjugates. 

“There are so many [companies] that the new assets are going to keep coming,” Li said. 

Much as in the U.S., China-based biotechs are also fighting for funding, pushing them to consider licensing deals with multinational pharma companies. At the same time, these pharmas are hunting for cheap medicines they can plug into their pipelines ahead of looming patent cliffs. The two trends are “colliding,” said Kristina Burow, a managing director with Arch Venture Partners. “I don’t see an end to that.”

The statistics bear Burow’s view out. According to Jefferies, the number and average value of deals for China-developed drugs reached record levels in 2024. Another report, from Stifel’s Tim Opler, showed that pharma companies now source about one-third of their in-licensed molecules from China, up from around 10% to 12% between 2020 and 2022. 

“I see huge opportunities for us to partner and work together with Chinese companies,” said Plump, of Takeda. 

Several venture-backed startups have been built around China-originated drugs, too, among them Kailera Therapeutics, Verdiva Bio, Candid Therapeutics and Ouro Medicines, all of which launched with nine-figure funding rounds. 

“There's been a lot of really good, high quality molecules and data that have emerged from China over the last couple of years,” said Robert Plenge, the head of research at Bristol Myers Squibb. “It's also no longer just simply repeating what's been done with the exact same type of molecule.”

Geopolitical risks

These deals are happening against an uncertain backdrop. The U.S. Congress has kicked around iterations of the Biosecure Act, a bill that would restrict U.S. biotechs from working with certain China-based drug contractors. A committee in the House of Representatives is calling for new limits on clinical trials that involve Chinese military hospitals. And the Trump administration has threatened tariffs that could ripple across industrial sectors. 

“We don’t know what this new administration is going to do,” said Jon Norris, a managing director at HSBC Innovation Banking.

The Biosecure Act “keeps going sideways,” added Hastings, who believes that any impact from the legislation, if passed, would be minimal. Instead, Hastings wonders if future tariffs may be more problematic. “There will be tariffs on other goods coming from China. Does that include raw materials and innovation? It’s hard to imagine that it won’t,” he said. 

But executives and investors expect deals to continue, meaning U.S. biotechs will have to do more to compete. 

“U.S. companies will need to figure out what it is they’re able to bring to the table that others can’t,” said Burow, of Arch. 

Borisy said startups working on first-of-their-kind drugs need to be more secretive than ever. “Do not publish. Do not present at a scientific meeting. Do not put out a poster. Try to make your initial patent filing as obtuse as possible,” he cautioned. 

“The second that paper comes out, or poster at any scientific meeting, or talk or patent, assume it has launched a thousand ships.”

Those that are further along should assume companies in China will be quick on their heels with potentially superior drugs. “The day when you could come out with a bad molecule and open up a field is over,” he said. 

Greater competition isn’t necessarily a bad thing, according to Neil Kumar, CEO of BridgeBio Pharma. Drug development could become more efficient as pharmas acquire medicines from a “cheaper” starting point and advance them more quickly. 

Venture dollars could be directed towards newer ideas, rather than standing up a host of similar companies.“If all of a sudden this makes us less ‘lemming-like,’” Kumar said, “I have no problem with that.”

Li similarly argues that, going forward, U.S. companies need to focus on “novelty and innovation.” At his own company, Li is now working on things “we felt others were not able to access.”

“The game has always been the same. Bring something super differentiated to market,” he said. But “the bar has risen.” 

Gwendolyn Wu and Jacob Bell contributed reporting. 

Biotechnology venture capital funding continued a multi-year surge in the first half of 2026, as strong public market performance and a spike in dealmaking activity helped spur interest in privately held drug startups, BioPharma Dive data show.

Data compiled by BioPharma Dive indicate that at least 68 biotech companies banked more than $9.1 billion in venture capital funding between January and June. The total amount raised represents the highest first-half sum since the start of 2022, among companies backed by the 26 firms BioPharma Dive tracks.

Venture capital has “continued to go strong” despite the threat of a U.S. government crackdown on investments in Chinese drug assets and turmoil at the Food and Drug Administration, said Ben Zercher, a senior analyst at research firm Pitchbook. And most investments come in the form of “megarounds” worth $100 million or more. About 76% of the total funds raised in the first half were part of those larger financings, according to BioPharma Dive data.

Partly driving that momentum, some experts say, is the encouraging performance of initial public offerings. Through the first six months of 2026, 13 firms brought in a combined $4.5 billion in IPO proceeds. Their median haul of almost $302 million was unusually large compared to prior years, and two companies, Parabilis Medicines and Kailera Therapeutics, broke sector records. 

Those companies are faring well in the public markets afterwards, too. Most of those that debuted this year are trading above their original share price.

Dealmaking has also accelerated to one of its fastest starts in a long time. BioPharma Dive data show that nearly 40 acquisitions have already been struck so far in 2026, putting the sector on its best acquisition pace in at least seven years. Almost two-thirds of those deals involved $1 billion in proceeds or more, and four topped $10 billion.

“The last few months have been reaffirming in terms of M&A,” Simeon George, the CEO and managing partner of venture firm SR One, said in a May interview. Though IPOs have been “a little more nuanced ... in the short term, the markets are a voting booth, and in the long term, they're weighing scales.”

Still, the venture funding tally this year has been partially inflated by a behemoth $2.1 billion funding round for AI drug discovery specialist Isomorphic Labs. And money isn't being doled out in the same way as it was before the bubble burst. Now, funding for startups searching for seed rounds — the crucial early capital necessary to get a company going — or biotechs led by first-time founders is not as abundant as it was five years ago, said Ashwin Singhania, a principal at Ernst & Young’s life sciences practice.

About two-thirds, or 42, of the venture rounds in the first half of 2026 went to a company that already had a drug prospect in human testing, according to BioPharma Dive data.

“I think that a grave concern to the biotech community is where is that next wave of early innovation going to come from, especially with the backdrop of what happened at the NIH,” Singhania said, referring to cuts to basic research funding that could have future consequences for the U.S. drug industry as far as a decade down the line.

Many of the companies that may receive venture dollars in place of seed-stage startups are built around ready-made drug prospects from China or elsewhere. Several, such as cAMPfield Therapeutics and Solstice Oncology, have started up this year. The flow of funding to those companies has sparked concerns about national security and market competition. But it’s also a reflection of a still-discerning investment climate, some say. 

"For the right management team, with the right platform or asset, there could be an appetite [for investing],” said Doreen Levine, a partner at Ernst & Young’s Americas life sciences sector accounting group. “The VCs have the liquidity and interest to do it, it's just that they're being very judicious."

So far, those investors appear to be leaning on areas that might be considered safer bets. Immune and cancer-focused drugmakers made up more than 40% of the funding rounds in the first half, data show. And developers of biologics and small molecules both raised more than $2 billion, dwarfing the totals secured by cell and gene therapy makers or companies specializing in nucleic acid-based therapies.  

For companies working on cellular or genetic medicines, the first half represented the continuation of a multi-year slump. They’re once again on pace to raise about $2 billion in 2026, similar to most years since 2022, according to BioPharma Dive data.

Pitchbook’s Zercher said the disappointing market performance of treatments like Casgevy, worrisome side effects seen in some clinical trials and “enhanced regulatory scrutiny” may be making investors wary of the space.

“With all the turnover that's going on at the FDA, it creates a perfect storm of, ‘maybe we just wait and see what's going on here before we size this bet on this market,” Zercher said.

SAN DIEGO — Expect initial public offerings for biotechnology companies to continue to pop in the second half of 2026, driven by investors eager to back drug startups with quality clinical data in hand.

In a June panel at the annual meeting of the Biotechnology Innovation Organization, investors and healthcare investment bankers argued that the pace of IPOs will accelerate — a surge fueled by “the same supply-and-demand dynamics” that ignited the last boom in stock offerings, said Dan Angius, the senior managing director of new listings and global markets at Nasdaq.

“The window’s open,” said Jim Healy, a managing partner at Sofinnova Investments, in an interview with BioPharma Dive.

A baker’s dozen of venture-backed biotechnology companies priced IPOs in the first half of 2026. Two, Parabilis Medicines and Kailera Therapeutics, eclipsed the previous record — held by Moderna — for the most raised in an initial share sale. Those two offerings are emblematic of what’s been a notable spike in the number of big-ticket IPOs in 2026. According to BioPharma Dive data, 11 of the year’s 13 newly public biotech companies secured at least $250 million in IPO proceeds, a total that already exceeds most years since 2018. 

“There have been a lot of really solid wins for investors that make them say the IPO product isn’t broken anymore, for the right company at the right price,” Jack Bannister, a senior managing director at Leerink Partners, in an interview ahead of the convention. Companies already in the public markets, or eyeing them, “have options in a way they might not have a year ago.”

One reason is that biotech companies are finding success after getting to Wall Street. BioPharma Dive data shows that most drugmakers in the 2026 class are currently trading at or above their debut prices. Veradermics, the leader so far, has seen its share price skyrocket more than five-fold following positive data for a hair loss treatment. Others, like Avalyn Pharma and Hemab Therapeutics, have had their post-IPO values climb even without a stock-moving catalyst.

That performance could be tied to certain commonalities among this IPO class. Prior to their offerings, almost all 13 companies had drugs in Phase 2 testing or later. These “asset-centric stories” are driving a “healthy” market, said Chirag Surti, an executive director on Morgan Stanley’s global capital markets team.

Several recently public companies are also led by veteran teams: Kailera is headed by Ron Renaud, a biotech veteran who’s built and sold three other drug companies. Kardigan, which banked $400 million in an IPO in June, was created by former executives of MyoKardia, which Bristol Myers Squibb acquired in 2020.

Despite the early positive performance for 2026’s biotech IPOs, experts don’t expect offerings to be as widely available as they were during the market’s previous peak. In 2020 and 2021, dozens of young companies built on broad drugmaking platforms went public before accumulating clinical data. Many subsequently failed, wiping out stock values and causing investors to retreat from biotech. 

Wonhee Oh, a vice president of healthcare investment banking at J.P. Morgan — the lead bookrunner on Kardigan’s IPO — said that, following that experience, drugmakers learned that they are “not in an environment that entertains the promise of a platform.”

“We're still in a disciplined environment where we actually have a checklist of things that makes us successful,” Oh said.

Activity is expected to increase in the months ahead. Nasdaq’s Argius estimated that there could be a dozen IPOs in the third quarter of 2026 alone. The unusually fast pace of company acquisitions this year has proven an important catalyst, rewarding the investors that backed previous IPOs. 

“The recycling of capital from M&A has allowed for the number of deals that have happened,” Surti said. “And we’re only at the halfway point.”

Four years ago, a record number of biotechnology companies flooded public markets, capitalizing on investor interest in drugmakers amid the COVID-19 pandemic.

Since then, though, many of those once high-flying biotechs have failed to meet expectations, leaving scores of them worth less than the cash in their bank accounts.

Historically, struggling biotechs would attempt to pivot, staking their future on a different strategy, a sale, or even a merger with a privately held firm. But recently, frustrated investors are pressing these “zombie” biotechs to shut down and return cash to shareholders instead.

This pressure has created an investment opportunity for an unlikely beneficiary. Over the last year or so, Xoma Royalty, a company known for betting on others’ future drug revenues, has started winding down distressed biotechs. Through those deals, Xoma returns cash to shareholders waiting for a payout, and profits by selling the rest of a shuttering biotech's intellectual property.

“We’re creating a small brand for ourselves as someone that wants to do the right thing for A, our partners, and B, the biotech ecosystem,” said Owen Hughes, Xoma’s CEO.

Xoma was once a traditional biotech company that developed and licensed out drugs. But in 2017, it changed course to become an aggregator of drug royalties. Since adopting that strategy, Xoma has acquired royalty rights to six drugs now on the market, among them Roche’s fast-selling eye drug Vabysmo. Others it has a stake in are advancing through clinical testing.

Recently, Xoma noticed the many firms that went public several years ago, but have since fallen on hard times, said Brad Sitko, the firm’s chief investment officer. “Those companies are now maturing to the point where they have negative data and are deciding not to exist,” he said. “They’re trying to figure out how to get capital back to shareholders.”

Xoma decided to step in, viewing the glut of biotechs worth less than their cash reserves — one firm in April estimated there to be nearly 300 — as a way to diversify and boost its own balance sheet. In 2024, it cut deals to acquire and liquidate Kinnate Biopharma and Pulmokine. Then between June and August, it scooped up Turnstone Biologics, Mural Oncology, HilleVax and Lava Therapeutics. Xoma also backed a deal that XenoTherapeutics, a nonprofit, struck for Essa Pharma.

These deals reflect both biotech’s difficult fundraising climate and public investors’ willingness to challenge the boards of struggling drugmakers. Several biotech companies, such as Acelyrin, Essa, Keros Therapeutics and Pliant Therapeutics, have faced shareholder pressure or outright calls to liquidate instead of pursuing mergers. Some, like iTeos Therapeutics and Third Harmonic Bio, have done so.

In the past, biotech boards rarely discussed liquidations as a "bona fide path forward,” but that's changing now, according to Eason Hahm, a director at investment bank William Blair.

“Boards and investors [are] saying, ‘Look, I think I can make the decision better on where that capital would be best used, perhaps better than just rolling it into another company,” she said.

Xoma isn’t alone. Some investment firms, like KKR and OrbiMed, are providing creative ways to finance companies that might have a tougher time raising cash through public stock sales. Others, like hedge fund Tang Capital Partners and investment fund Alis Biosciences, are joining Xoma in pursuing buy-and-liquidate deals. Tang, through its acquisition vehicle Concentra Biosciences, has been particularly active, buying out Cargo Therapeutics, Elevation Oncology and Kronos Bio, among others.

An analysis by William Blair of the six buy-and-liquidate deals in the second quarter of 2025 found $1.5 billion in combined net cash on the sellers’ balance sheets.

“We’ve seen the rate of these types of deals accelerate in 2025 primarily because we came to a crossroads in biotech where it continued to be a difficult fundraising market, and there was a stronger call from investors to return that capital,” Hahm said.

Some of the pressure can be attributed to the limited partners that back venture firms. "They get very frustrated when the VCs don't send any money back,” said Chris Garabedian, chairman and CEO of biotech company creator Xontogeny and portfolio manager of the Perceptive Xontogeny Venture Fund.

“‘We committed $30 million to your fund, and we haven't even gotten one check back after five years?’” Garabedian said. “And so that’s where every VC is focused on: how do we exit?”

When firms like Xoma or Tang show they’re willing to make a liquidation offer, biotechs are pushed to be "more accountable" for their R&D spending, Cantor Fitzgerald analysts wrote in a February note. Should they succeed, investors can redirect their freed cash to other biotechs, they said.

"Most would say that would be a good thing," Garabedian said. “The problem is the board of directors, the management teams, are usually [concerned] about survival. They're the last ones that want to see something shut down [because] they lose their jobs."

Xoma sees the deals it’s striking as a short-term, but critical service that should help the biotech sector regain its footing. Returns on many IPOs have been poor, and illustrate how biotechs need to be more efficient with their cash, Hughes said.

“We will rebound. We always have,” Hughes said. “But we, as an industry, need to do certain things in order to actually invite the capital back.”

“Acquiring these companies,” he added, “is just one of many things that need to be done.”

In the notoriously expensive business of drug development, SiteOne Therapeutics made do with little. The biotechnology startup formed in 2010, aiming to create new, non-addictive pain relievers at a time when overdoses involving opioids were killing more than 20,000 people in the U.S. each year.

Yet the dire need for safer medications didn’t resonate with most investors. To them, pain was too risky. Scientists knew the general outline of how it worked: a cut, scald, break, pinch, slam or zap would alert special proteins and chemicals, which, like sentries, relay pain signals through the body. But the finer details of this process were — and, in many cases, still are — fuzzy, like how people who suffer the same injuries can report very different pain experiences.

This uncertainty meant SiteOne had to, for most of its life, rely on small grants to stay afloat. “There was certainly a difficult period,” CEO John Mulcahy said late last year. “Pain was out of favor, so it was difficult to raise capital around these assets.”

That period now appears over. Since late 2024, SiteOne not only closed a $100 million fundraising round led by Novo Holdings, the controlling stakeholder of Ozempic-maker Novo Nordisk, but also agreed to sell to Eli Lilly in a deal that could be worth up to $1 billion.

The newfound interest and investment can be attributed, in good part, to Vertex Pharmaceuticals, which has led the charge investigating a group of tube-shaped, pain-regulating proteins called sodium ion channels. After a quarter century of meticulous, onerous work, Vertex’s labs finally crafted a channel-blocking molecule the company viewed as safe, effective and precise enough to help address the opioid epidemic.

In January, the Food and Drug Administration approved this molecule, known commercially as Journavx, as a treatment for the sharp, short-lived “acute” pain felt after an accident or surgery. Ken Harrison, a senior partner at Novo Holdings, said a core reason his firm decided to back SiteOne was that Vertex had established these drugs can be successfully studied and brought to market.

While Journavx has so far proven remarkably safe and absent of addictive properties, doctors remain torn about how useful it will ultimately be for patients. At its best, the drug looks to be only as potent as a weak opioid. 

Still, TD Cowen analysts recently described the drug’s approval as a “watershed moment that could pave the way for a new era of non-opioid pain treatments.” Indeed, SiteOne and at least 10 other developers want to follow in Vertex’s footsteps with their own medicines that stopper either the “NaV1.8” sodium ion channel, as Journavx does, or a close cousin, “NaV1.7.”

What are sodium channel inhibitors, and how do they work?

Found in the outermost layers of many cells, these proteins function like faucets for charged sodium particles. They open in response to various stimuli — a bright light switching on, a bite of a salty food, a handful of ice from the freezer — at which point ions flood into the cell. This rush creates an electrical pulse that travels through the nervous system and to the brain, where it's used as information to determine how the body should feel and react.

Of the nine known types of sodium ion channels, three are primarily found in the peripheral nervous system, where they play key roles in pain signaling. The signaling process resembles a line of dominoes. At the start is the root of the pain, at the end the brain. By blocking these channels, scientists are effectively removing a couple of the earliest tiles so they can’t continue the cascade.

“You’re stopping the pain as close as you can to the source,” and leaving “other modalities of sensory signaling intact,” explained Stephen Waxman, a neurology professor at the Yale School of Medicine who’s made significant discoveries about the role ion channels play in pain, on a 2023 podcast run by The New England Journal of Medicine.

For drugmakers, NaV1.7 and NaV1.8 have emerged as the two most popular pain targets. One reason is their location. Being on the outer edge of the nervous system, rather than thoroughly embedded in organs like the heart or brain, reduces the risk that channel-blocking drugs will disrupt other vital body functions.

These proteins also work in different ways, offering researchers a shot at treating a variety of pain types. NaV1.7 acts like a light switch, abruptly turning the pain signal on and off, while NaV1.8 is more akin to a dimmer. SiteOne’s Mulcahy has said NaV1.8 could therefore be a more desirable target for chronic pain management, since the goal there usually is not to shut pain off, but to dial it back down to “normal.”

Designing medicines that bind to a specific sodium channel remains exceptionally challenging, as the subtypes all share very similar structures. Additionally, the proteins move extremely fast — opening and closing in milliseconds — and are exposed to relatively large electrical fields. Only in the last 15 or so years, with the creation of new tools, have drugmakers been able to adequately study and precisely drug ion channels.

What are the advantages over other drugs for pain?

Scientists believe that, by avoiding the central nervous system, sodium channel blockers can alleviate pain without eliciting the side effects or addictive risks posed by opioids. The late-stage studies that led to Journavx’s approval support this theory.

Together, the two trials recruited more than 2,000 people who had just undergone either a “tummy tuck” surgery or a bunion removal. Participants received either Vertex’s drug, a placebo, or a combination of Tylenol and a commonly prescribed opioid that served as an “active comparator.” Investigators found lower rates of nausea, dizziness and headache among those given Journavx than in the other groups.

Journavx was generally safe and well-tolerated, according to Vertex, and nearly all of the adverse events seen in these studies were mild to moderate in severity. Drug-treated patients did, however, show higher rates of itchiness, rash and muscle spasms compared to their placebo-treated counterparts.

As for its effectiveness, Journavx proved significantly better than the placebo at alleviating acute pain. Both trials measured this with a 0-to-10 scale wherein patients rate their pain intensity at a series of time intervals over two days.

Notably, the drug was not more effective than the active comparator regimen. That’s raised debate about its utility in a setting like acute pain, where both patients and healthcare providers are typically looking for a powerful, quick-acting medication. While Vertex leadership has maintained this finding won’t deter doctors from prescribing Journavx, some pain experts have described the pill’s effects as modest. Richard Vaglienti, medical director of the Center for Integrative Pain Management at West Virginia University, even classified the results as “glaring.”

That could leave the door open for other developers to compete — even those working outside the field of sodium ion channels. In May, Pittsburgh-based Viatris reported positive results from late-stage studies evaluating a reformulated version of an old medication, an “NSAID” called meloxicam, in people who had bunion removal or hernia repair surgeries. Viatris said its drug didn’t just beat a placebo at providing acute pain relief, an after-the-fact analysis found it also offered “significantly superior pain control” to tramadol, an opioid less potent than the one used in Vertex’s studies.

Following this release, Brian Skorney, an analyst at the investment firm Baird, noted how Viatris’ data “highlight a number of concerns we have with Journavx’s profile, in particular, onset of action, a critical factor for post-operative pain.”

The results, Skorney argued, make Journavx “look like an inferior option” compared to a “pretty old” drug. “If NSAID’s don’t have the highest efficacy, as Vertex is fond of saying, what does that say about Journavx?” he wrote.

Which companies are developing NaV1.7 and NaV1.8 inhibitors?

The majority of developers researching sodium ion channels for pain are small biotechs.

One, Dogwood Therapeutics, formed in late 2024 through the reverse merger of Wex Pharmaceuticals and Virios Therapeutics. It had 12 full-time employees at the end of December. Another, Channel Therapeutics, had four, and is now in the process of combining with a subsidiary of drug commercialization specialist Ligand Pharmaceuticals.

Such deals could suggest that, while this area is receiving more attention, building a company around it remains challenging and may require less conventional methods for raising money at a time when investors are viewing biotech more skeptically.

Other players include Praxis Precision Medicines, Newron Pharmaceuticals, RaQualia Pharma and Xenon Pharmaceuticals. Two more, Sangamo Therapeutics and privately held Navega Therapeutics, are taking a genetic approach, with therapies built to suppress the gene that encodes for NaV1.7 proteins.

Latigo Biotherapeutics is further ahead, and like SiteOne touts a drug aimed at NaV1.8 in mid-stage testing. That drug, LTG001, is being evaluated in acute pain following a tummy tuck, bunionectomy or wisdom teeth removal.

Latigo is backed by prominent life sciences investors such as Westlake Village BioPartners, 5AM Ventures and Alexandria Venture Investments, and in March announced the closing of a $150 million funding round that CEO Nima Farzan said should keep the company going at least until it has late-stage data for LTG001.

Vertex and Eli Lilly, with its pending purchase of SiteOne, currently appear to be the sole big pharmaceutical firms in this space, though others have shown interest. AbbVie had “ABBV-318,” an oral molecule designed to inhibit both NaV1.7 and NaV1.8, but no longer lists the drug in its pipeline. Scientific American reported in 2024 how Merck & Co.’s patent activity also suggests it may be stealthily exploring ion channels for pain.

A Merck spokesperson said the company is “committed to neuroscience research,” including chronic and acute pain. “At this time, it’s too early to share information related to sodium ion channel inhibitors, but we will continue to collaborate with scientists and investigators worldwide to advance innovation and find solutions that may address complex and debilitating neurological diseases.”

At Vertex, company leaders are trying to expand Journavx’s approval beyond acute pain and into chronic, though testing has thus far delivered mixed results. Vertex is working on a series of other, small molecule pain drugs, too, including a “next-generation” NaV1.8 inhibitor named VX-993.

The investment bank Stifel models Journavx sales reaching $1.1 billion in 2030 and $3.6 billion in 2038. The average analyst estimate on Wall Street, according to Stifel, is that sales of the drug will hit nearly $2 billion by the end of this decade.

What is the status of these companies’ research?

Vertex is now enrolling a Phase 3 study to evaluate Journavx as a treatment for the chronic nerve pain experienced by some patients with diabetes. Simultaneously, it’s running a smaller study of VX-993 in the same setting.

The assets from Latigo, Newron and Dogwood have either entered or gone through mid-stage trials. A roughly 250-participant study is exploring Latigo’s LTG001 for wisdom teeth removal pain, with results set to arrive sometime in 2025. The active ingredient in Dogwood’s Halneuron is actually the neurotoxin found in pufferfish. Investigators are now hoping to enroll about 200 patients in an experiment that will assess the drug as a treatment of chemotherapy-induced neuropathic pain.

Meanwhile, a federal database of clinical trials shows the most recent listings for Newron’s ralfinamide were last updated in 2009 and 2017. The Italy-based company didn’t respond to requests for more recent information about the program.

SiteOne hopes to “rapidly advance” into Phase 2 testing the medicine that caught Lilly’s eye and encouraged it to pursue an acquisition. Like Journavx, this “STC-004” therapy is designed to obstruct NaV1.8.

Mark Mintun, group vice president of Lilly’s neuroscience research and development, in May said that the company is “eager to continue” advancing STC-004. “Innovation in pain management is critical to address the unmet needs of millions of patients around the world.”