7/17/2025 – Gwendolyn Wu – Even before HSBC’s report, there were signs of a biotech funding slowdown.
Research the investment bank Jefferies published in May and again in June found a substantial pullback in financing in public companies. Private rounds tracked by BioPharma Dive have gotten larger, but are fewer in number, too, as venture firms appear to be favoring surer bets. Initial public offerings have largely been on pause since the middle of February.
HSBC’s findings detail the fallout for drug startups more specifically. A combination of worries over pharmaceutical tariffs, research funding cuts and leadership changes at public health agencies drove a slump that led to startups’ worst quarter in terms of seed or Series A funding rounds since 2023, according to Jonathan Norris, a managing director at HSBC Innovation Banking.
The uncertainty has made investors more conservative, prompting them to shy away from smaller deals and band together for larger fundings, such as “megarounds” of $100 million or more. These investments allow companies to “get almost three traditional rounds” through one financing, Norris said.
Yet even megarounds dipped from 21 over the first three months to 16 between April and June. And along with that decline, the so-called crossover investors that often support the rounds preceding an IPO retreated from biotech venture deals. Only two of the top eight rounds included new crossover investors, a decline from each of the last two years.
“Many crossover investors are at their own proverbial crossroads, with too many private investments that have yet to IPO and many public companies struggling with low market caps,” Norris wrote in the report.
Their disappearance is, in part, due to the poor performance of companies that went public in 2024. The median stock price decline for last year’s class was 70% at the end of the first half, according to HSBC.
One bright spot is a steadier pace of M&A deals for private companies, which give venture capital firms another chance at investment returns. Last year, 17 drug startups were acquired — the highest total since 2020 — and buyouts are proceeding at a similar pace in 2025. Those deals prove “you can still get to an exit with early data in the right space,” Norris said.
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