Young startups miss out on biotech venture funding rebound, MassBio says
The biotech industry has largely clawed its way back from the 2022 downturn, with record-setting IPOs, a brighter venture funding environment and a sharp rally in the XBI, an exchange-traded fund closely tied to sector health. But according to MassBio, the recovery is not reaching the companies that may matter most for the next wave of medicine.
The trade group’s latest report found that seed-round and Series A financing sizes for Massachusetts biotech startups are moving in opposite directions, an indication that investors are gravitating toward more clinically advanced drug prospects and stepping away from the earliest, most uncertain science. MassBio said its “biggest concern” is the “earliest startups with the riskiest science.”
Investors who back early-stage companies have become more selective. To secure venture support, founders need to demonstrate “novelty, commercializability and confidence in leadership,” said Ben Bradford, MassBio’s head of external affairs, in an interview.
“Importantly, a healthy ecosystem needs this renewed momentum to also reach the front end of the pipeline, where new companies are formed and the next wave of promising science is born,” Kendalle Burlin O’Connell, MassBio’s president, said in a statement.
The report also points to a shifting global landscape. Licensing deals with China-based biotechs have surged in recent years, altering the pharmaceutical pipeline and adding competitive pressure on young U.S. companies. For the first time, MassBio included a “China Watch” section in its report, tallying $79 billion in total proceeds from licensing deals for China-discovered drugs last year, compared with just $1 billion in 2019. China now runs more early-stage clinical trials than any other geography in the report.
“We’re far from losing, but we’re treading water at a time when an adversary is swimming laps,” Burlin O’Connell said.
The debate over how to respond has split biotech. Some executives argue that licensing and clinical work with China should be limited, while others say restrictions could cause more harm than good. Legislation remains preliminary: proposals to add biotechnology to the COINS Act, which would subject these partnerships to greater scrutiny, have not been enacted. Plans to accelerate drug research in the U.S. are also still being shaped.
MassBio has backed those legislative efforts. Bradford said many companies use China for licensing, clinical testing or manufacturing not simply because it is cheaper, but because projects can move faster there.
“The FDA was created when innovation was happening within the four walls at large pharma. That’s not how it happens anymore,” he said. “It’s happening at small biotechs who don’t have large regulatory teams or budgets to decipher unclear messaging or who have to compete with pharma for access at the FDA.”
For MassBio, the concern is that the current rebound, while real, is too narrow. If seed-stage companies are left without funding, the industry risks losing the discoveries that will shape its future.