The U.S. biotechnology sector is facing a challenging period, with recent gains in the public biotech markets not extending to early- and mid-stage companies. Despite some stabilization in later-stage biotech, startups are struggling due to limited long-term funding, a lack of domestic pharmaceutical investment at early stages, and insufficient government mechanisms to address extreme capital cycles.
While the biotech XBI index rebounded in the latter half of 2025, it remains up only 23% over three years. In contrast, the Nasdaq-100 tech index rose by 123% during the same period. Early-stage innovation continues to be underfunded, threatening America's position as a global leader in biotechnology.
China has accelerated its efforts in biotech through substantial government investment and policy support. The country’s “whole-of-country” approach includes heavy spending on infrastructure and research, regulatory reforms that shorten clinical trial review periods, and direct investments into startups via government-backed funds. These initiatives have helped Chinese firms secure significant international partnerships and increased out-licensing activity.
In the first half of 2025 alone, $48 billion was spent by the pharma industry in China—surpassing all of 2024's total. The Chinese biotech sector surged by 122% within eight months in 2025. U.S. biotechs’ share of global market capitalization fell from about 62% at the start of 2025 to roughly half by mid-year.
A Senate report from the National Security Commission on Emerging Biotechnology (NSCEB), led by Senator Todd Young (R-Ind.) and Vice Chair Michelle Rozo, argued for elevating biotech as a national security priority on par with cybersecurity or military readiness. The report warned that failing to prioritize biotech could result in losing control over essential healthcare resources.
At this year’s J.P. Morgan Healthcare Conference, global healthcare leaders discussed capital allocation decisions that will shape competitiveness for the year ahead—a sign that industry stakeholders are focused on whether the U.S. can maintain leadership or risk falling behind faster-moving rivals like China.
ARPA-H launched in 2023 with $1 billion annually for health innovations but has largely directed awards through academic and nonprofit organizations rather than forming a unified national strategy for scaling American biotech businesses. Cuts to NIH funding have further strained support for translating scientific discoveries into sustainable companies.
Biotech investments typically span longer timelines than most venture capital cycles—12 to 15 years—and while later-stage investment is returning, early innovation remains disproportionately underfunded. Increasing interest in artificial intelligence startups has diverted venture capital away from biotech; AI companies attracted over $200 billion globally in 2025—an increase of more than 80% compared to the previous year—with half of all VC funding now going toward AI ventures.
By comparison, biopharma received around $25 billion from venture capital last year according to SVB data; much of this was concentrated among established companies focused on areas such as AI-driven drug discovery and GLP-1s therapies, leaving little for new entrants or diverse approaches.
Pharmaceutical giants have shifted strategic partnerships abroad—particularly toward China—drawn by lower costs and predictable regulatory environments there. This shift leaves American startups without vital support and increases their funding challenges.
According to a J.P. Morgan report published ahead of its annual healthcare conference in San Francisco, heightened diligence standards and longer decision timelines contributed to reduced venture activity for early-stage biotechs last year (https://www.biospace.com/article/early-stage-biotechs-feel-the-squeeze-as-funding-favors-derisked-assets-jpm/).
To remain competitive internationally, U.S.-based preclinical and early clinical-stage firms require stable funding solutions beyond private capital alone—potentially including a national sovereign wealth fund dedicated to biotechnology alongside public-private partnerships.
However, simply increasing available funds is not enough; regulatory reform is also needed. Countries like China and Australia have implemented faster clinical trial reviews and streamlined processes that make them attractive destinations for research trials—a contrast with bureaucratic hurdles faced by American firms.
A McKinsey analysis suggests most physicians are evaluated based primarily on care delivery rather than participation in clinical research under CMS rules—a misalignment if promoting more clinical trials is an objective. Reforming rating systems could reward principal investigators for efficient trial execution while accelerating approval processes at high-performing sites.
Reducing clinical trial timelines through regulatory reform could improve domestic research attractiveness by up to 20%, helping restore U.S. leadership in both innovation and healthcare outcomes.
As stated: "If America wants to retain its global biotech leadership and safeguard healthcare security, then our country’s leadership, including the President, must elevate biotech to a national strategic priority."
"Prioritizing biotech means dedicated investment, modernized regulations, innovative funding solutions and strategic, long-term commitments."
In related commentary on broader trends impacting science policy: "Flagship CEO Calls Out Attacks on Science, Warns of China Dominance...a choice between near-term 'human-made miracles' and a reversion to the pain and suffering of past diseases due to 'growing contempt' in the U.S. for the scientific method."
