The 36th edition of the Ernst & Young LLP (EY US) Biotech Beyond Borders Report finds that the biotech industry is grappling with a wave of challenges, including ongoing economic and geopolitical disruption, tightened financing, looming patent cliffs and cost pressures. However, biotech's performance over the past year reflects the industry's underlying resilience and ability to navigate emerging challenges.

"Biotech's activity levels in 2025 point to encouraging signs of market recovery, though uncertainty continues due to macroeconomic headwinds," says Ashwin Singhania, Principal, Life Sciences, EY-Parthenon, Ernst & Young LLP. "Encouragingly, we're seeing sustained momentum in 2026, as licensing and M&A volume and value continue to increase, IPOs continue to launch and there are some signs of recovery in venture capital funding."

Biotech Beyond Borders analyzes the state of the industry through a summary of US and European public company revenues, financing, M&A activity, alliances, product approvals and other factors. The report offers executives a deep dive into the current dynamics as well as an industry outlook.

Other key findings include:

• Venture capital (VC) is prioritizing later-stage assets: In 2025, there was a major uptick in late-stage VC investments, while early-stage value and volume dropped. VC activity also reinforced the long-deepening division between the industry's haves and have-nots, with the total US$20.6 billion raised disproportionately from late-stage deals, which climbed to US$10 billion from 254 rounds. The industry generated another US$4.3 billion in VC investment in the first quarter of 2026, with some major rounds despite the ongoing business uncertainty.
• M&A activity rebounded: Overall, dealmaking in 2025 remained disciplined yet skewed toward targeted acquisitions over broad, transformational megamergers.
  • The momentum accelerated into early 2026, with the first quarter deal value accounting for 36% (US$36 billion) of total deal value of US$99.7 billion in 2025, and average deal size of approximately US$2.7 billion — highlighting a shift toward larger, higher conviction transactions.  
  • Oncology led M&A by deal value (~US$16.8 billion in >US$1 billion deals), with neurology a close secondary driver (~US$14.4 billion).  
• Biotech fundraising is robust among smaller players: Fundraising by biotechs outside the industry's group of commercial leaders was US$58.9 billion — the highest seen since 2021. Follow-on financings, which were a particular source of concern in 2024, also rebounded to 34%, led by major financing rounds particularly for orphan disease and immunology-focused biotechs.
• Persistent challenges for the IPO market: Equity capital markets remained constrained in 2025, and the IPO market declined ~47% compared with 2024. While IPO activity has picked up in early 2026, external challenges remain. These include the rise of China offering outsourcing for early-stage innovation, as well as questions surrounding budgeting and ongoing support from the National Institutes of Health under the current US administration.

"Biotech has consistently shown its resilience to successfully navigate the unknowns," says Arda Ural, PhD, EY Americas Life Sciences Leader. "With valuations surpassing twice the S&P 500, the majority of approved products classified as first in class and a pressing secular need for biopharma to grow inorganically to offset patent expirations, I see a rather positive outlook for the biotech sector."

In 2025, the biotech industry saw strong revenue growth, up 13% to US$232 billion. with a record 72 companies generating over US$500 million in revenues. However, the financing landscape is currently defined by a paradox: on one hand, a record number of "megarounds" are being signed, but on the other hand, a growing number of biotechs are caught in an ongoing liquidity trap.

Looking ahead, the tailwinds of 2025 underline the need for biotechs to stay alert and agile to adapt quickly to a changing business environment. However, the industry has demonstrated its capabilities in anticipating and offsetting emerging risks. While unpredictable challenges will keep developing, the industry must prioritize maintaining its balance to keep advancing.

To read Biotech Beyond Borders, visit https://www.ey.com/en_us/life-sciences/biotech-outlook?WT.mc_id=14001717&AA.tsrc=pr.