By Nilesh Kumar
About the author: Nilesh Kumar is head of biotech private investments at Wellington Management.
As pharmaceutical companies raced to develop a Covid-19 vaccine in 2020, the biotech industry boomed. Investors eager to capitalize on the momentum poured money into biotech companies and sought opportunities to back new drugs, regardless of where they were on the path to clinical success and regulatory approval.
The sector has struggled to maintain the fervor in years since. Market sentiment is currently cautious at best. IPO activity and venture capital funding for biotechs, particularly those backing more exploratory new treatments, have dropped off meaningfully.
At the peak of the biotech boom in 2021, more than half of the 104 companies that went public in the U.S. were either preclinical or in Phase 1 trials -- the earliest stages of testing for new medicines -- and therefore the most speculative stage from an investment standpoint. By 2024, the number of new offerings had dwindled to 24. Last year, only 11 biotech companies joined the market. Just one was a company whose leading drug candidate was in early-stage trials.
VC biotech activity has experienced a similar drop off. Venture firms invested just shy of $50 billion across 2,413 biotech deals in 2021 in the U.S. That fell to $14 billion across 702 investments in the first half of 2025.
The biotech sector lost enthusiasm because of variety of factors, including the underperformance of many of the early-stage companies that went public over the past few years. Macro factors, including uncertain regulatory environment and drug pricing policies, have created headwinds -- although it feels that the worst of those issues are in the past.
Some uncertainty around the Food and Drug Administration remains, but we believe scientifically rigorous and evidence based approaches will win this year; good drugs that address unmet medical needs won't sit on the shelves.
That is good news for the venture firms seeking liquidity and for a stock market looking for promising growth stories.
The biotech industry's mood has been lifted recently by the combination of a surge in mergers and acquisitions, driven by a need among Big Pharma to replenish pipelines to offset the impact of drug patents expiring, and hopes for scientific breakthroughs in important treatment areas.
Last year's standout deal was Pfizer's acquisition of Metsera for an upfront $7 billion with a potential additional $3 billion in milestone payments. The transaction was emblematic of one of the most significant medical trends of recent years: The widespread uptake of obesity drugs.
The launch in January of the first oral obesity drug by Novo Nordisk was the beginning of several new obesity treatments being developed and licensed, which bodes well for investors looking for exposure to blockbusters. Eli Lilly announced Wednesday that their oral obesity drug will enter the market soon. Eli Lilly, Amgen, and Novo Nordisk have said they plan to unveil late-stage clinical trial results for next-gen obesity treatments this year.
There is likely going to be more M&A activity in the obesity space as incumbents and challengers position for this large market segment. Novel obesity drugs that improve on the current standard of care in obesity are being developed by a number of biotechs and will be of interest to pharma acquirers.
Besides obesity, arguably the biggest unmet need in biotech today are therapies for dementia. Effective treatments, let alone a cure, for Alzheimer's disease and other neurodegenerative diseases have been extraordinarily difficult to develop -- but that may change soon. Drug candidates aimed at treating Alzheimer's are due to present late-stage clinical trial results this year. The industry is hopeful that at least some of these candidates will show effectiveness in slowing or reversing cognitive decline.
A host of other potential new dementia treatments in development will follow these trailblazers, and these too may attract excitement among private and public market investors. The two go hand in glove. An active IPO market provides encouragement to venture capital players of the viability of that route as an exit possibility, as well as providing a guide as to which therapeutic areas are of most interest to the stock market.
While policy can always shift, the industry remains grounded in an evidence-based approach that supports long-term biotech investing. For investors burned by recent experiences of false hope and over-exuberance, this year is more likely to be one where expectations are reset.
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April 01, 2026 16:07 ET (20:07 GMT)
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