The first half of 2025 was brutal for biotech, but investors are still keen on therapeutics in several indications and silver linings exist, particularly for private companies.
“You’ve got a market industry that is already facing a lot of challenges,” Omar Khalil, managing director at early-stage investor Santé Ventures, recently told Fierce Biotech. “And then you just kind of inject every type of uncertainty and volatility within a very short timeframe.”
In less than six months, President Donald Trump’s administration overhauled federal health agencies with mass layoffs, research grant cancellations and leadership changes. The president also introduced the potential of pharmaceutical import tariffs and drug pricing reform to the broader biopharma market.
Then, April 2, Trump announced his proposed package of taxes on imports from nearly all countries, prompting a widespread equity market crash.
Reeling from these changes, the biotech industry halted to a “complete standstill,” Khalil explained, noting that the policy and regulatory disruptions injected new shocks to the system.
“The commentary that I heard from a few people was, ‘Well, we might as well just go home, go off on vacation for the next few months,’” Khalil recalled. “And maybe things will be better by the end of the summer.”
While the sentiment around potential biopharma tariffs remains uncertain—are biotechs exempt from pharmaceutical tariffs? Will the tariffs only impact commercial products?—the situation for biotech’s private players has improved in these summer months, Khalil said.
“There's a little bit of a new normal that's a result of a lot of those policy changes,” he explained, with biotechs learning how to manage the impacts, preparing for numerous possibilities and—in some cases—realizing the effects aren’t as severe as feared.
But even as biotechs adjust to the newest normal, companies still face the longer-term challenges that have always tested the industry.
The sector has already suffered greatly from a yearslong bear market, with hopes of stabilization this year quickly dissipating. Layoffs have reached a four-year high, and at least 14 startups have closed their doors thus far in 2025.
Investors have continually raised the standard for data packages, and that bar is only getting higher.
For early-stage investor Santé, that means investing in biotechs that are closer to the clinic than the companies the firm backed three or four years ago with very young discovery projects.
Hot biotech indications for early-stage investors
While general investors have backed away from the sector, life science VCs remain interested in novel therapeutic development, particularly in certain high-value areas.
Though immunology and inflammation may not be as “incendiary” as it was last year, it remains a very active space, according to Khalil.
Within the last six months, Third Rock-backed Merida Biosciences has launched with a $121 million series A for its autoimmune disorder candidates, Attovia Therapeutics secured a $90 million series C for its inflammatory skin condition programs, while Versant’s Granite Bio unveiled with $100 million to advance antibody treatments for autoimmune diseases. And that’s to name just a few.
Meanwhile, oncology is swinging back, the Santé managing director said. As the space became oversaturated and the obesity craze stole the show, investors had backed away from the field.
But cancer is just “too big not to continue to see significant investment in,” Khalil said. Take Strand Therapeutics’ $153 million and Minghui Pharmaceutical’s $131 million in just August alone as two examples.
And then there’s the space that has really lit up investors’ radars over the last year: cardiorenal therapeutics.
Fueled by the obesity drug space exploding in 2023, many pharmas are now considering the broader space, such as cardiometabolic or cardiorenal development, Khalil said. Companies are looking to identify additional diseases with high unmet need that can build around those franchises, he explained.
Some examples in cardiorenal would be heart failure with preserved ejection fraction or polycystic kidney disease—indications where there are still large patient populations with significant unmet need, translating to large market potential.
Lastly, there’s neuropsych, a field that encompasses mental health conditions to neurodegenerative diseases and has attracted quite a bit of attention in the last year or two.
Despite the varied challenges seen in the clinic—such as penetrating the blood-brain barrier and ethical considerations for patients—the field has attracted significant investment and activity, underscoring a major gap in current treatment options.
Just this year, numerous biotechs have secured fundraises above $125 million, such as major-depressive-disorder-focused Draig Therapeutics or Tenvie Therapeutics, a biotech that has licensed certain Denali Therapeutics assets and carries the mission of transforming the neurological treatment landscape.
Indications facing the brunt of FDA changes
On the flip side, there are a few indications that most investors may be sidestepping these days—areas that are being heavily impacted by the FDA changes.
Those sectors are vaccines and cell and gene therapies.
Vaccines are a main target of Trump’s pick to lead the Department of Health and Human Services (HHS), well-known anti-vaccine conspiracist Robert F. Kennedy Jr. Most recently, the federal leader has relaunched a task force designed to evaluate vaccine safety for children, while also ending federal contracts related to $500 million in mRNA vaccine development.
Then there’s cell and gene therapy, a space that has experienced sinking investor sentiment over the last year, particularly surrounding gene therapies.
The most prolific example, of course, is Sarepta Therapeutics. The biopharma recently underwent a messy regulatory tug-of-war with the FDA centered on its controversial Duchenne muscular dystrophy gene therapy, Elevidys.
The spotlight on the issue prompted Vinay Prasad, M.D., to exit the agency less than three months into his role leading the Center for Biologics Evaluation and Research, which oversees vaccines and cell and gene therapies. At the time, Prasad’s departure was seen as a potential positive for the cell and gene field, with some industry watchers hoping to see more regulatory flexibility and the chance to give patients with difficult-to-treat conditions “the right to try.”
Those hopes were short-lived, as Prasad returned to the agency less than two weeks after being pushed out.
These developments and others have prompted investors to be extremely wary of the modalities, though it is important to note that feelings surrounding gene therapy had already started to sour before the new administration began rolling out changes.
Meanwhile, some new policy changes from the FDA offer the potential for benefit, Khalil said, pointing to the agency’s focus on transparency and reducing unnecessary animal trials. These initiatives could help speed up the process of bringing new drugs to the market, the investor said.
Silver linings
After several dark months, a silver lining still exists for biotech companies.
“The positive side is pharma still has gigantic patent cliffs that they're looking to address,” Khalil said. “Pharma still needs to fill their pipeline. The assets are still attractive. They're still important.”
Many Big Pharmas face steep patent cliffs over the next few years and are turning to biotech for candidates that could potentially compensate for the looming financial losses.
The pharmas have been active in their efforts to find new blockbuster drugs, especially for the private side of biotech.
“Because the IPO markets have been stalled for the last several years, you just have good technologies and good companies that have been private,” Khalil explained, adding that pharma is purchasing “at an even faster clip” than before.
“As the dust has settled a bit more on the private side, it feels like there are deals that are starting to get done,” he said, adding that the market appears to be stabilizing.
At the end of the day, biotech is continuously fueled by the fact that there’s still a tremendous amount of patient need for new drugs across numerous diseases, Khalil concluded.