High profile failures and long timeframes for revenue have shifted investment away from Phase I, as VCs seek to mitigate risk, Pitchbook said in its 2025 outlook.
Biopharmas seeking venture capital dollars in 2025 better be armed with data when they make their pitches, as mid- to late-stage clinical companies will continue to be the sweet spot for investments in the industry, according to Pitchbook’s VC outlook.
“Market corrections over the past few years have amplified the emphasis on risk mitigation, steering VC focus away from early-stage assets with limited clinical validation,” Pitchbook analysts wrote in the report released last week.
The industry is still fighting back from a years-long downturn that spurred pipeline prioritizations, dropped assets, layoffs and other struggles in 2022 and 2023. The trend stubbornly continued through 2024, with investments in Phase I in particular declining significantly, to about $2 billion compared to $4 billion the year prior.
Meanwhile, investments in Phase III dropped from around $2 billion last year to $1.7 billion this year. Pitchbook attributed this to financial and operational complexities of late-stage trials, meaning Phase II is all the more important to attract partnerships or licensing agreements with Big Pharma.
Bucking the trend, Phase II VC investments made a rebound to $5.2 billion compared to about $4 billion the year before. “This trend highlights the growing reliance on proof-of-concept data to de-risk investments and enhance valuations,” the report read.
With that said, all bets are off when it comes to obesity and GLP-1 drugs, Pitchbook said. “The market’s reaction to the blockbuster sales of Eli Lilly’s and Novo Nordisk’s products has fueled a wave of investor enthusiasm. The GLP-1drug category, characterized by its copycat nature and reduced clinical complexity compared with novel therapeutic areas, has required less extensive clinical data to instill confidence among venture capitalists.”
AI, too, bucks the trend in VC investment in biopharma. AI has been big across the sector, with investors willing to put up huge dollars to get in on the ground floor. Examples include Xaira Therapeutics’ massive $1 billion raise this year, which easily was the biggest raise of the year despite providing not a shred of even pre-clinical data. But Pitchbook noted that these companies are struggling to prove their worth and demonstrate clinical validation.
Pitchbook urged investors not to completely eschew early-stage research or platform technologies that could one day yield multiple shots on goal.
“Unforeseen scientific breakthroughs, unexpected positive outcomes from early-stage assets, or a surge in strategic partnerships between Big Pharma and platform companies might shift investor sentiment back toward earlier innovation,” the report said.
