Biotech funding experienced a dramatic 57% decline to $2.7 billion in May 2025, according to a new analysis from investment bank Jefferies that attributes the downturn to policy uncertainty created by the Trump administration's approach to drug regulation and research funding.
The May funding total represents only a marginal improvement over April's nearly $2.6 billion haul, which marked the worst three-year period for biotech investment. The current funding levels are also 44% below the 12-month average, highlighting the severity of the sector's financial challenges.
Policy Uncertainty Drives Investment Decline
Jefferies analysts David Windley and Tucker Remmers directly linked the funding decline to specific Trump administration policies affecting the pharmaceutical sector. "Current policy proposals and agency staffing cuts have cast a cloud over biotech investment," the analysts wrote in their client note.
The policy concerns center on three key areas: mass layoffs at the Food and Drug Administration, proposed colossal budget cuts to the National Institutes of Health, and unclear plans to lower U.S. drug prices. These changes have created what the analysts describe as an environment not conducive to biotech investment.
"Since product development cycles can range 12-15 years in this industry, biotechs (and their boards and investors) want clarity on FDA regulation, drug pricing, and funding before committing to large, [long-term] investments," Windley and Remmers explained.
Cash Flow Crisis Emerges
The funding shortfall has created a particularly dangerous situation for public biotech companies, which raised only $1.1 billion in May through initial public offerings, follow-on stock offerings, and PIPE deals. This amount falls "far below" the roughly $4.5 billion these companies burn through each month on average, according to the Jefferies analysis.
The cash flow imbalance is especially problematic for an industry where most drug startups never become profitable and require near-constant fundraising to support the expensive process of discovering and testing new medicines.
Company Shutdowns and Strategic Reviews
The challenging funding environment has already forced several companies to make drastic decisions. Cancer drugmaker iTeos and immune system specialist Third Harmonic Bio have both announced plans to sell their assets and shut down operations in recent months.
Other companies are exploring strategic alternatives due to funding constraints. California-based Tempest Therapeutics is evaluating strategic transactions because it lacks sufficient capital to complete studies of its main drug candidate. CEO Stephen Brady noted that capital markets "have been unavailable to support the next stage of advancement."
Venture Capital Shows Resilience
While public market funding has declined significantly, venture capital contributions have demonstrated more stability. The Jefferies analysis found venture capital funding down 12% compared to 2024, while public market funding dropped 62%. Monthly venture capital funding has averaged approximately $1.9 billion in 2025.
Industry-Wide Impact
The funding crisis has created ripple effects throughout the biotech ecosystem. At Lux Capital, principal David Yang reported that academic institutions have begun requesting money to cover overhead costs shortly after hearing news of proposed NIH cuts.
Michelle Hoffmann, Executive Director of the Chicago Biomedical Consortium, expressed concern about the broader impact on company formation. "We're incredibly worried we won't get enough projects through our process to be building new, small companies," she said, describing "a lot of fear and uncertainty" and "tightening belts" across the sector.
Investors have increasingly pressured struggling biotech company boards to liquidate and return capital to shareholders rather than continue operating in the difficult climate, further contributing to sector consolidation.
The analysts noted that while comparative declines should begin to ease in the second half of 2025, the "uncertainty on steroids" that has characterized the past six months may persist as the industry awaits clarity on regulatory and funding policies.
