Biotech is showing early signs of life after a prolonged funding winter, but for many early-stage companies, conditions remain unforgiving. Years of low valuations, high borrowing costs and regulatory uncertainty have reshaped investor behaviour, with capital scarce for all but the most compelling stories. In the third quarter of 2025 alone, UK biotech funding fell 46% quarter-on-quarter to £187 million.
A rebound in Big Pharma M&A has injected optimism into the sector, but it has also exposed a widening divide. Companies with late-stage assets, strong IP, and clear regulatory paths are finding renewed interest, while others are hitting brick walls. The question facing founders today is no longer whether capital will return to biotech, but what separates the companies that secure it from those left out in the cold?
From optimism to scrutiny – biotech’s reset moment
Some may argue VCs and public markets have turned against biotech but there is a clear resurgence of deal-making and funding underway – 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 wanting 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 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 under-pricing 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.
Discipline, differentiation, and data win funding
Despite the frosty headwinds, the UK markets aren’t anti-biotech – in fact, the UK remains as Europe’s leading biotech market. They are anti-undisciplined spending and weak differentiation. Capital is still flowing and, according to AlphaSense platform data, total funding in EMEA showed 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 of the year. And already in 2026, we are seeing a significant uptick in funding, and even some M&A activity, across Europe and in the UK, including bit.bio’s notable Series C round and EQT’s interest in taking over Oxford BioMedica.
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 focusing 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 aspiring 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.
Founder fatigue and playing the long game
For biotech founders, the path forward remains challenging but far from hopeless. This cycle is rewarding a different mindset, one focused on survival, discipline and proof, rather than speed or inflated valuations. Founders must assume capital will remain selective and build companies accordingly, prioritising clear differentiation, credible timelines and tangible scientific validation.
Resilience matters just as much as strategy. Founder burnout is increasingly recognised as a critical risk, with many companies falling short not because the science failed, but because the people behind it ran out of energy or options. Yet for those who endure, the upside is significant. The survivors of this funding winter will emerge with less competition, stronger ownership of scientific white space, and operational discipline that outlasts the initial funding cycle.
