Phase 2 trial data will continue to be the name of the game when it comes to VC investments into biopharma in 2025, according to PitchBook.
“In 2025, venture capitalists are expected to prioritize companies advancing to phase 2 and beyond,” the data insights company said in its Healthcare & Life Sciences Outlook for next year. “These stages of development offer greater clarity on efficacy, safety, and commercial potential, making them attractive targets for risk-adjusted investments.”
Phase 2 investments totaled $5.2 billion across 2024, PitchBook noted, while phase 3 investment fell to just $1.7 billion compared to a 2021 level of $4.2 billion. While on the face of it, the drop in interest in more mature clinical data seems counterintuitive, the analysts attributed this decline to “the financial and operational complexities of late-stage trials, underscoring the importance of strong phase 2 data to attract partnerships or licensing agreements with Big Pharma.”
Against an economic backdrop of rising interest rates and tighter capital markets, PitchBook doesn’t expect investors’ appetite for companies with “clearer paths to monetization or Big Pharma acquisition” to wane any time soon.
This is part of an ongoing trend, PitchBook pointed out, with companies with drugs in midstage trials “consistently captur[ing] the highest deal sizes” over the past four years—excluding 2023 when investors’ eyes were turned by the potential of phase 1-stage obesity assets.
Obesity drugs—fueled by the blockbuster success of Novo Nordisk and Eli Lilly—aren’t the only area in which investors can be persuaded to part with their cash before a drug has entered midphase trials. PitchBook suggested artificial intelligence platforms have emerged as another “notable exception.”
Still, recent setbacks by AI leaders like BenevolentAI and Exscientia are a reminder that no new technology is without its own obstacles to overcome.
“The GLP-1 drug 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,” PitchBook explained. “In contrast, while AI platforms have attracted large early-stage investments with concentrated bets without clinical data in companies like Xaira and Generate:Biomedicines, the leading public companies in this space are struggling to demonstrate strong clinical validation of their approaches.”
But the shine doesn’t appear to have rubbed off quite yet. PitchBook said early-stage AI-driven biotech companies—“particularly those applying generative AI approaches to biologics”—were able to maintain their high valuations this year.
“While still early in their lifecycles, these ventures captured significant investor interest and capital, reflecting sustained confidence in their long-term potential, even amid a challenging public market environment,” the analysts added.