2025 was a year of two halves for the biotech sector. The first half was dominated by uncertainty, with markets becoming increasingly unsettled following the late-2024 US presidential election and coming to a head with president Trump’s ‘Liberation Day’ tariff announcements.
Those wider concerns were compounded by sector-specific issues, including debate around drug pricing resurfacing and questions facing leadership and resourcing at the US Food and Drug Administration (FDA). Together, these developments created a challenging backdrop for the sector, with the lack of visibility weighing heavily on investor confidence.
The second half of the year saw conditions become more clement. Business continued as usual at the FDA despite leadership changes, restoring confidence in the regulatory process, while merger and acquisition (M&A) activity also picked up as large pharmaceutical companies began to re-engage strategically after a period of relative caution. Financing markets also improved with higher-quality companies continuing to successfully raise capital, although the initial public offering (IPO) window remained largely shut.
Promising pipeline
This improvement in conditions was evident in the atmosphere at this year’s J.P. Morgan Healthcare Conference, an event which has long been a focal point for the industry.
In previous years, discussion at the conference has often centred on clinical milestones and M&A. This year, however, many biotech companies used the platform to provide updates on commercial execution and revenue guidance. That shift reflects a broader change across the sector. An increasing number of biotech companies are choosing to take assets fully through development and into commercialisation themselves, rather than partnering early or seeking acquisition by larger pharma groups. This is an important development which bodes well for future value creation.
Sentiment around capital availability also felt more constructive. IPO activity looks to be picking up with 20-30 in the pipeline for 2026 and equity issuance has already been strong this year, with more than $3bn raised in the first couple of weeks of January, extending the momentum seen in the second half of 2025. Balance sheets are generally strong, leaving ample financial flexibility, and valuations remain in attractive territory with EV/cash multiples below historical averages.
From the perspective of M&A, although no major deals were announced at the conference, there was credible speculation around future activity, including the potential for some very large transactions. As one senior pharmaceutical executive put it, the constraint to further M&A is not access to capital but identifying the right strategic opportunities.
Regulation was another recurring theme, with health policy featuring prominently in the programme. For biotech investors, the most relevant contribution came from Dr Marty Makary, the recently appointed commissioner of the FDA. Makary emphasised the need to shorten the journey from invention to patient, greater flexibility in trial design, increased use of historical controls and a reduced reliance on multiple Phase III trials as potential ways to accelerate development, particularly in a global context where other regulatory regimes are often seen as nimbler.
Innovation abounds
The conference also revealed continued momentum across several areas of innovation within the sector. Obesity remains a prominent theme, with particular interest in next-generation treatments. Progress in oral GLP-1 therapies featured heavily, underlining the opportunity beyond injectable drugs and the potential for future approaches that could broaden uptake and improve patient experience. Meanwhile, immunology, oncology and CNS (central nervous system) were also areas of considerable excitement, with a number of highly anticipated clinical read-outs expected this year.
Overall, we see a sector that has moved through a difficult period and is now in a more supportive environment. Sentiment has improved meaningfully, capital is available for high-quality assets, regulatory processes appear to be becoming more pragmatic and strategic interest from large pharma companies is evident.
These conditions are consistent with where we believe the sector now sits in the biotech investment cycle. Having emerged from a period of volatility, we believe the industry is now firmly in the longer, more benign ‘equilibrium’ phase, generally characterised by steady progress, healthy balance sheets, and typically, growing interest from generalist investors which can lead to valuation expansion.
While the IPO market has yet to meaningfully reopen, the order book is full, and improving sector conditions and renewed interest from more generalist investors gives us confidence as we look ahead. We believe the environment remains supportive for 2026 and beyond – and we hope to be making hay in the sunshine for a while yet.
Ailsa Craig and Marek Poszepczynski are portfolio managers at International Biotechnology Trust. The views expressed above should not be taken as investment advice.