The biotech industry needs to stop waiting for a rebound. The pandemic changed everything, though not in the ways most people think.
Biotech has undergone a transformation so fundamental that many in the industry still haven’t fully grasped what has changed. My time at this year’s J.P. Morgan Healthcare Conference in San Francisco, where my firm Treehill Partners met with executives from more than 170 companies and hosted seven structured roundtable discussions, solidified this for me. The world that biotech knew before the pandemic is not coming back, and the sooner the sector accepts this, the sooner we can build something better.
To understand where we are, consider where we’ve been. The pre-pandemic era was characterized by a venture capital model that, for all its inefficiencies, sustained a functioning ecosystem. Limited partners allocated generously to life sciences, with a straightforward calculus: fund enough companies, accept that most will fail and count on a handful of spectacular successes to generate portfolio returns.
The pandemic changed all that, though not in the ways most people think. Yes, it validated mRNA technology and compressed regulatory timelines. But more consequentially, it triggered a massive influx of capital into some subsets of biotech that distorted the entire market.
Brave New World
A widely held retrospective view is that in 2020–2021 it was easy for biotech companies to raise capital. Well, it was not. Whilst some companies raised hundreds of millions on preclinical data and PowerPoint slides, and this perceived boom created an illusion that the fundamentals of drug development had somehow been suspended, others were heavily hit by operational delays to clinical trials (elective surgeries were suspended for months) and the significant increase in overall risk levels. Nevertheless, more money was flowing into the sector.
Then came the correction, or what is now perceived as such. Since 2022, we have watched a prolonged funding drought reshape the landscape. Capital was redirected toward artificial intelligence, climate technology and other sectors perceived as offering more predictable returns. The traditional venture model that sustained biotech through the 2010s appears increasingly misaligned with current capital allocation priorities. Most biotech companies seeking funding today face considerable obstacles to securing capital under traditional terms.
But JPM 2026 revealed something genuinely different emerging from the wreckage: the early contours of a new model. This is not the triumphant recovery that investment bankers love to herald. It is quieter, more substantive and far more demanding of the companies participating in it.
The central insight is deceptively simple: biotechnology needs to get its head out of the sand about commercial viability. For too long, the industry has operated on the assumption that brilliant science alone justifies investment. It does not. The aspiration to develop billion-dollar blockbusters, while understandable, no longer reflects market realities for most biotech companies. Products with peak sales potential of $100–$300 million can represent genuinely successful outcomes, but they require fundamentally different development economics. The companies that are attracting capital today are those that can articulate not just what their molecule does, but why a specific development budget is commercially appropriate and offers competitive risk-adjusted returns.
Decrease Costs To Increase Value
At my company, we recently conducted an analysis of clinical trial efficiency, with results suggesting that approximately 85% of clinical studies could be designed better. One major issue is that the vast majority of programs proceed without commercially relevant target product profiles at the time of launch. This disconnect between clinical development decisions and commercial requirements remains a fundamental challenge.
For example, we have seen companies entirely overlook new entrants into the marketplace that will change the standard of care and render their comparator obsolete. Others continue to develop combination regimens that can’t be expanded from treating a minor subpopulation. And still others yet choose to launch high-priced new products that provide only marginal improvement over a cheap generic, among other mistakes. These biotechs fail to work backward from market requirements to development strategy, advancing scientific programs without adequate consideration of how resulting data will support market access and competitive positioning.
The market will not fund hope. It will fund plans and the skills needed to implement them.
Meanwhile, Asian biotechnology, particularly from China and Korea, is maturing. This is no longer a story about lower-cost manufacturing or me-too molecules. Chinese pharmaceutical development now reportedly matches or exceeds the quality of programs from established Western companies in certain therapeutic areas. China accounts for approximately 20% of all drugs in global development—nearly double the combined share of the five largest European markets.
Yet innovation alone does not capture value. The economics of the global pharmaceutical industry continue to favor those who control market access and commercialization. The U.S. remains the most profitable pharmaceutical market globally, and access to it is dominated by Western players with established commercial infrastructure and payer relationships.
So what does success look like in this brave new world? The companies finding receptive audiences among investors and partners at JPM shared several characteristics:
- They demonstrate commercially relevant target product profiles with defined competitive positioning.
- Their development strategies consider regulatory requirements across multiple jurisdictions.
- Their capital requirements align with realistic development timelines and risk profiles.
- They explain not just the science, but the business case.
- Their operations are under control.
The fundamentals of drug development remain unchanged: sound science, rigorous development, realistic positioning and effective execution. What has changed is that tolerance for deviation from these principles no longer exists. The market will not fund hope. It will fund plans and the skills needed to implement them.
For well-prepared companies, the current environment represents genuine opportunity. For those still clinging to pre-pandemic assumptions, the imperative to adapt has never been clearer.
