When the variance can’t be modeled, even disciplined biotech investors stop deploying. Here’s the cheapest fix for biotech’s investability problem.
Nearly every executive in life sciences is keeping a ledger right now. On one side are the things they cannot control: wars in the Middle East and Ukraine; tariff threats targeting pharmaceutical manufacturing in Europe, China and India; residual rate volatility; and an investor base that has grown more selective at every level. Generalist investors have fled for AI and energy transition. Specialists are concentrating capital in derisked late-stage names.
On the other side are the things the sector can fix. That column is shorter, and one item is bigger than all the others combined: the predictability of the FDA.
Based on my years of experience as an executive for both biopharma companies and investment firms, it’s clear to me that this predictability is the low-hanging fruit. Not deregulation. Not a softer review. Predictability.
In a sector where capital cycles run across a decade and outcomes are binary, predictability determines whether biotech is investable to a broad enough universe of buyers to reopen the window beyond a narrow band of de-risked late-stage companies. Every quarter that the U.S. leaves this fruit on the branch, capital flight accelerates and the competitive gap with China and Europe narrows.
The data on capital flight
EY’s 2026 Firepower report pegs 2025 life sciences M&A at $240 billion, an 81% jump over 2024, even as deal volume fell 12% and biopharma deal count fell 19%. Average deal size more than doubled to $2.1 billion. J&J’s $14.6 billion Intra-Cellular buyout and Novartis’s $12 billion Avidity acquisition set the tone. Cash-rich pharma pays premiums for late-stage assets where regulatory uncertainty has been resolved. Earlier-stage developers wait or sell at distressed marks.
Aftermarket performance underscores the IPO market’s selectivity, with most investment going to just a handful of companies. Among the 14 2026-priced biotechs tracked by BioBucks, Veradermics is up roughly 600% from issue, while some platform-oriented names such as Eikon Therapeutics trade below offering. The signal is that capital is available, but only for derisked, focused stories with near-term clinical or regulatory inflection. Platform companies with longer roadmaps and earlier-stage assets remain effectively shut out.
Venture data shows the same concentration of investment: PitchBook clocked about $33.8 billion of biopharma VC in 2025, flowing to fewer, larger, later-stage companies than in prior years. Megarounds dominate platform programs. Everyone else waits, because waiting is rational when the FDA is a moving target.
Across IPO, venture and M&A, capital flows toward certainty. That is the game.
The fruit hangs lower than it appears
Drug development runs on long capital cycles, binary outcomes and a cost of capital sensitive to perceived risk. Regulatory uncertainty damages capital flow through four channels.
First, regulatory unpredictability raises the cost of capital on every pre-approval program. Biotech valuations are the present value of probability-adjusted future cash flows, and regulatory variance attacks both inputs at once: it lowers the probability of approval and raises the discount rate investors demand for bearing the risk. As a result, a clinical-stage biotech that models at $20 per share with a 12% cost of capital—meaning the company must generate at least a 12% rate of return to satisfy its investors and maintain its current value—can instead model at $14 with a 15% cost of capital. Specialists experience this as a fall in the value of their stock holdings even as biotechs’ profits remain unchanged. Generalists experience it as a deterioration in biotech’s risk-adjusted return relative to AI, energy and other allocations competing for the same dollar, and they cut exposure.
Second, regulatory risk breaks the underwriting case for binary events. A specialist fund can stay long through a 30% probability that a new drug application (NDA) will be met with a complete response letter (CRL). It cannot underwrite a probability that drifts with which reviewer has the file or which agency leader appeared on a podcast that week. When variance becomes unmodelable, specialists trim and concentrate on names where the regulatory gate is already cleared. Meanwhile, generalists walk.
A specialist fund cannot underwrite a probability that drifts with which reviewer has the file or which agency leader appeared on a podcast that week.
Third, regulatory uncertainty widens the gap between bid and ask in private and public markets. Sellers price in the base and most likely case. Buyers price based on this case minus a regulatory uncertainty premium. The 2025 IPO count of 11 does not reflect investor disappearance, but rather a bid-ask gap so wide that issuers cannot clear the market on defensible terms. As for the 2026 IPO market, it so far indicates selectivity, not recovery. The 2026 window is a keyhole, not a door. Until the FDA gives investors a more underwritable regulatory backdrop, the keyhole will not widen, regardless of macro improvement.
Fourth, FDA unpredictability shortens the staying power of long-duration capital. Long-dated funds carry investor or limited partner (LP) commitments that demand distributions on a clock. When uncertainty pushes out exit timing, funds tighten deployment criteria and their LPs are unwilling to commit it on a 10-year arc into a regulatory regime no one can model. Dry powder accumulates.
The industry’s experience in 2025 and 2026 demonstrates the cost of regulatory uncertainty. Roughly 90% of senior FDA leaders present a year ago have left. Commissioner Marty Makary resigned under pressure on May 12, leaving the agency leaderless. The FDA’s Center for Drug Evaluation and Research (CDER) has had six leaders since January 2025, while the Center for Biologics Evaluation and Research’s (CBER’s) Vinay Prasad stepped down twice in less than a year.
UniQure’s stock lost about one-third of its value in a single session after Makary’s made televised remarks seemingly about its Huntington’s disease gene therapy. Sarepta, Capricor, Replimune, Biohaven, Scholar Rock, Sanofi and Corcept each absorbed CRLs in 2025 that the prior guidance cycle did not telegraph. Roughly 37% to 41% of new drug applications and biologics license applications receive a first-cycle CRL. RBC’s Brian Abrahams noted in a January podcast episode that “in a sector so reliant on regulators, this type of inconsistency has challenged investability and caused a lot of stock volatility.”
None of this is structural. All of it is process. Process is fixable.
This is not an argument against rigorous review. Rather, it is an argument for predictability. A practical agenda includes stable, qualified leadership at CDER, CBER and the Center for Devices and Radiological Health; written guidance on accelerated approval standards, surrogate endpoints and real-world evidence; adherence to PDUFA timelines with faster written feedback; predictable advisory committee processes; communications discipline that confines regulatory views to formal channels; and codified mechanisms to challenge division-level decisions without litigation. None of this requires deregulation or congressional action. All of it would compress the variance specialists and generalists currently price in, and most can be implemented within a single fiscal year.
The cost of failing to act is significant. Consider that emerging biopharma originated 85% of the 48 new molecular entities launched globally in 2024, per IQVIA, and global novel drug launches surged to 79 in 2025. But China captured 34% of U.S. and European biopharma alliance investment in 2025, up from 4% five years prior, and now accounts for about 20% of global drug development. Capital and science are already moving.
A more predictable FDA is the cheapest, fastest lever the U.S. has to bring generalists back, restore specialist conviction and protect a half-century lead in biomedical innovation. The fruit is right there.
