How can biotech survive its funding winter?

Biotech may be crawling out of its long funding winter, but early-stage firms are still shivering. After years of weak valuations, stubbornly high borrowing costs and regulatory uncertainty, UK biotech companies raised 46% less in the third quarter of 2025 than in the previous quarter, at £187 million.

While a resurgence in Big Pharma M&A has injected some much-needed optimism, the reality is more nuanced. Only biotechs with late-stage assets, clean IP, and regulatory clarity are enjoying the upswing. Everyone else is still struggling in the choppy waters of economic uncertainty. But what are the differentiators between those that win and those that are left out in the cold?

Scepticism, rates, and “me-too” drugs

Some may argue that VCs and public markets have turned against biotech, but the reality is they have become much more sceptical. It’s all about how risk, time, and capital intensity are priced. Several factors have converged over the last five years – most notably after the COVID-era – the biotech bubble bursting, and changing market incentives, as burned-out investors have had to re-learn how brutal drug development can be.

It doesn’t help that higher interest rates punish biotech more than almost any sector, with long timelines, binary outcomes, and costly projects disproportionately affecting it more than other businesses with cash flow. There is also the problem of too much capital chasing too few differentiated assets, with VCs now scrutinising what sets a business apart. Biotech is full of “me-too” drugs, platform companies without clear product paths, and overcapitalised, bloated firms. These businesses are left answering to VCs that want to know why this specific drug is better than others previously backed that didn’t work. On top of this, public markets are losing patience with never-ending science projects, and increasingly want late-stage assets, clear regulatory paths, and capital discipline.

The reality is that the UK biotech industry has world class discovery with second-tier monetisation. The UK public markets are structurally hostile to biotech as investors much prefer profitability and cash flow. In light of genuine concern around UK IPO risk, there is chronic underpricing for UK valuations compared with US peers. This, combined with regulation ambiguity post-Brexit and fragmented government support, means British VCs and public investors remain structurally cautious, even when the underlying science is promising.

The new playbook for raising in a challenging market

Despite the frosty headwinds, the UK markets aren’t anti-biotech. They are anti-undisciplined spending and weak differentiation. Capital is still flowing and, according to the AlphaSense platform data, for example, total funding in EMEA has shown strong recovery momentum in late 2025, with October marking the strongest funding month of the year. Adding to this, Isomorphic Labs, the Google DeepMind spin out raised $449 million in 2025, one of the largest VC financings in the UK biotech sector this year.

Those that stand out and see success laser in on why the biology is right, why the drug or asset is different, and how they can reach value inflection with minimal capital. Companies that focus on one solution first have a better chance at raising money, as it signals clear direction. Even if the company fails, the loss is capped, unlike those that aspire for empire building from the start. Human efficacy is another key differentiator, as human data cuts through macro fear; even the most modest trial numbers will beat a preclinical deck presentation.

A final point to consider is UK biotechs that look US-grade raise investment well, often having US syndicates or strategies behind them. They appeal to investors as they have a US clinical strategy from day one, a willingness to redomicile if needed, and can therefore neutralise the UK-exit discount early on. This makes them a safer bet for bigger investment and all around lower risk.

How founders can survive until conditions properly thaw

For biotech founders, the investment landscape is still evolving and hope should remain intact. By optimising for optionality and survival, instead of valuation or speed, the investment outlook should improve. Founders must operate as if raising capital may never get easier again and re-anchor their company on what investors want to see – low risk, scientific proof, and a realistic timeline.

It’s also important for founders to build personal resilience. Founder burnout is widely reported to be a major contributor to failure, with companies failing to reach their stated goals not due so much to scientific failure, but from founder exhaustion. However, despite the difficulty of this biotech investment cycle, the rewards for the industry as a whole will be much greater. The companies that survive will own a scientific white space, face less capital competition, and be built with discipline that lasts decades. In biotech, survival itself is a competitive advantage, and something to be remembered.

About the author

Andy Smith is director of life sciences at AlphaSense, where he leads a high-performing team and drives client success in the life sciences sector across EMEA.