As investors weigh the risks of pumping capital into the biopharma industry, more are sticking to the relatively safe shores of late-stage bets with a clear exit, leaving earlier-stage biotechs in a more precarious financial position, according to a report from J.P. Morgan.
Biopharma venture capital investment reached almost $25 billion in 2025 with a total of 413 deals. That was a slight drop from nearly $28 billion spread out over 461 deals in 2024, according to JPM data. But both years were a far cry short of 2021, which saw more than $44 billion in venture capital investment over 774 deals.
Beyond the drastic decrease in total funding, JPM found that investors’ appetite for risk in biopharma is changing, contributing to a widening gulf between late-stage clinical drugmakers and their earlier-stage biotech counterparts.
“From a fundraising standpoint, a lot of the capital is going to companies that are soon to be in the clinic, or at least soon to have pivotal data go public,” said Kathryn McDonough, head of life sciences and innovation economy at J.P. Morgan Commercial Banking. “Innovation is not stopping, and you do have capital chasing some of the early seed-stage and series A ideas, but it’s a trickier market to attract capital.”
Although some early-stage ventures have gained traction, especially where AI is playing a role in the drug discovery process, McDonough said, early-stage companies are having trouble generating investor enthusiasm. Seed and series A capital last year fell to its lowest level this decade, with only $8.7 billion total investment and a deal count of 191.
Meanwhile, funding for companies seeking series B or later was almost double at $16 billion for the year.
Weakness in early-stage funding comes from “heightened diligence standards and longer decision timelines for early-stage startups,” according to the JPM report, while later-stage companies benefit from de-risked development paths despite a higher price tag.
“What gets tricky is the middle segment,” McDonough said. “Companies have to be more flexible with capital raising plans, with licensing partnerships and discussions with Big Pharma. And management teams need to be prudent about costs and where their next raise is going to come from.”
The resulting gap is reshaping the biopharma landscape, McDonough said, and leaders across the board need to understand and work within the evolving framework.
Licensing on the rise
While early-stage companies and those stuck in the innovation valley of death are seeing fewer VC dollars come their way, as well as a narrow IPO window that often rules out a public exit, more are licensing their technology to those with deeper pockets and a firmer grasp on the commercial market.
With fewer companies completing venture financing deals last year, licensing becomes more attractive as a means of finding capital to stay in business.
“I ask clients all the time, are you building to sell or are you building to keep? It runs the full gamut,” McDonough said. “But as an avenue for funding, licensing to pharma is becoming more pronounced because of where the equity markets are — pharma has the balance sheets to do that, and the company gets to fuel their pipeline with the package.”
In highly sought-after areas like obesity and weight loss, for instance, Big Pharma’s appetite for licensing is still ramping up. Last week, AstraZeneca struck a deal to license up to eight obesity and diabetes medications with China’s CSPC Pharmaceutical Group. The price tag? Up to a whopping $18.5 billion, including milestone payments.
Other pharma giants licensing weight loss platforms include Pfizer, Roche, Regeneron, AbbVie and Novo Nordisk, reflecting a strong urge to be part of the next-generation conversation in a space with such active market potential.
Despite the widening gap, small biotechs with early-stage pipelines still stand a chance if they remain flexible and prudent, McDonough said. By focusing on key attributes of the business and appealing to investors’ fear of missing out, they can get their idea into the right hands and generate enough runway to keep going.
“Where is the next dollar going to come from? Raises are taking longer, investors require more data points and the goal posts keep moving, which creates a lot of frustration,” McDonough said. “But it’s about staying the course and being strategic and methodical about who you’re meeting — there’s a lot of interest from the top down, which is helpful.”
