Opportunity, Policy, and Paradox
Taking Stock of Life Science Innovation in 2025
Photo by Paul Skorupskas on Unsplash
Children throw tantrums when they are displeased about something. The tantrum itself is not an indicator of the validity of their desire. Hunger, thirst, and sleep are essential elements of life—but emotional dysregulation is counterproductive. It antagonizes, delays, and rarely achieves its goal.
We believe this is a proper analog for the current tariff episode. Onshoring and domestic manufacturing, deterring unfair trade practices, reshoring critical functions, and raising living standards—these are all legitimate, even laudable, policy goals. But the current approach to achieving them resembles less a negotiation and more a tantrum, risking significant collateral damage without improving strategic competitiveness. It is a tactic likely to weaken the very ecosystems it claims to protect.
Perhaps no ecosystem is more at risk than that of innovation. The US has long held a position of comparative advantage with the best system of research and development as measured by outputs. Our university system has worked extremely well in partnership with taxpayer-funded projects and capital markets to birth new technologies and global businesses, many of which have driven American Exceptionalism. However, life science innovation is now under threat from all angles.
Capital markets are questioning the value of funding risky, capital-intensive science. Regulatory bodies and the Secretary of Health and Human Services are openly anti-science. The federal government is pulling funding from the NIH and hollowing out university budgets. Coupled with stringent, anti-immigrant policy and rhetoric risks severe brain drain. Tariff policies threaten to further upend R&D budgets.
And even still, we’re left with more questions than answers.
We return again to the refrain made famous by Howard Marks: “No one knows. (Yet Again)”
Will interest rates fall as the delayed effects of prior trade policy ripple through the economy?
Will budget cuts to the NIH and U.S. research institutions undercut America’s global innovation leadership?
Will aggressive immigration enforcement erode the scientific talent pipeline that built the biotech industry?
Will pharma investments in U.S. manufacturing create a bifurcated system of regulatory favoritism?
Will Most Favored Nation pricing and small molecule penalties from the IRA be reversed—or enforced?
Will we see drug shortages or a new surge in price controls?
Will regulatory chaos at the FDA worsen before it gets better?
No one knows. But our responsibility is to assess the environment with clarity, adjust our expectations accordingly, and make the most prudent, adaptive, and forward-looking investment decisions possible.
Markets in Flux: A Recovery Disrupted
The first quarter of 2025 continued to see momentum building through the end of last year and offered some reasons for optimism. Biotech deal value rebounded materially, albeit concentrated in later-stage, de-risked assets. Phase 2-stage companies dominated the investment flow. In contrast, early-stage innovation—especially discovery-stage therapeutics, novel delivery technologies, and emerging diagnostics—continued to struggle with capital access.
The sector continued to be a sea of contradictions. Biotech was the second-busiest venture sector behind software, yet XBI capital outflows outpaced inflows for 42 out of 52 weeks in 2024. At the same time, crossover funds are largely sitting out private investments preferring the value and liquidity of the public markets. The IPO window remains shut. New tariffs—coupled with regulatory upheaval—have sent investors back to the sidelines.
More than 190 public biotech companies are now trading below their cash balances. Venture fundraising in the space is on pace to hit its lowest level in over a decade as many investors shift their focus to the public markets, where companies have strong cash positions and offer liquidity that the private investments do not.
The WSJ offered this grim assessment, “More investors are even wondering if the whole model—risky science, costly funding, political uncertainty and long waits for payoffs—is simply broken. For many of the nearly 200 companies trading below their cash value, it probably is.”
Regulatory Disarray: From Uncertainty to Instability
Among the most destabilizing events this year was the abrupt resignation of Dr. Peter Marks, head of the FDA’s Center for Biologics Evaluation and Research. His departure, and the appointment of Dr. Vinay Prasad—a critic of both industry and alleged regulatory leniency—has thrown advanced therapeutics into a new era of unpredictability.
Prasad has argued the FDA has become a rubber stamp and has even proposed its dissolution in prior writings. Though his recent rhetoric is more tempered, his philosophy signals a far more skeptical posture toward gene therapies, rare disease programs, and accelerated approval pathways.
Simultaneously, HHS Secretary Robert F. Kennedy Jr., a vaccine skeptic and populist critic of mainstream science, has further unnerved the sector. His leadership has drawn sharp rebuke from investors, analysts, and patient advocates, all concerned about the erosion of scientific integrity in policymaking.
Reports from the trenches at FDA indicate a demoralized, overworked, and stressed staff, among those that remain. BioSpace reported that, “The FDA in recent weeks has started to show lapses in its regulatory function and delays with its review process.” Failures to meet decision dates include Stealth BioTherapeutics, GSK’s Nucala, and an updated Novavax shot. This should not come as a surprise, “Since Robert F. Kennedy Jr. assumed the role of Secretary of Health and Human Services in February, the FDA has lost some 3,500 employees to layoffs.”
Perhaps acknowledging their own fault, they have mercifully started to rehire, but damage has been done. While the FDA has begun rebuilding, including hiring back AI talent and planning a June 30 rollout of generative AI capabilities, its institutional memory and regulatory consistency have been compromised.
Trade, Tariffs, and the “America-First” Biotech Strategy
The return of tariff escalation—coupled with efforts to reframe biotech as national security infrastructure—has produced a more inward-looking, protectionist funding environment. According to PitchBook, the “All-American Biotech” thesis is accelerating, with companies like Eli Lilly, Merck, and Novartis pledging billions toward U.S.-based manufacturing. That’s the good news.
The bad news? These moves, driven by industrial rather than business strategy, have slowed M&A, dampened valuations, and delayed IPOs across the board. As one Roche executive said bluntly: “Tariffs will make the financial case for M&A more difficult.”
With less liquidity in the system, companies are shelving trials, missing milestones, and burning runway with zero visibility on follow-on capital. Only the most disciplined business models—and the most strategic capital providers—will endure in this environment.
What This Means for ExSight Ventures
At ExSight, we believe early-stage innovation still represents one of the best long-term opportunities in life sciences. But the path has narrowed. Winners will be those who stay focused, build resilient businesses, and partner with experts who understand both the science and the system.
Our strategy is unchanged—but newly validated by the chaos around us.
We invest early, relying on our internal expertise, identifying ophthalmic breakthroughs that others miss.
We stay lean, investing in companies that can operate with capital efficiency and navigate early milestones with limited dilution.
We prioritize platforms that combine therapeutic differentiation with clear regulatory paths and strategic exit potential.
Despite macro pressure, our portfolios continue to advance:
One company has completed enrollment in a clinical trial for a chronic indication.
Others are tracking toward clinical readouts and value inflections in the second half of 2025.
We have meaningfully added to our investment in Horizon Surgical Systems through additional contributions to an ExSight-sponsored SPV.
Market conditions have created a bit of a contradiction for us in that while some of our portfolio companies are experiencing these challenges firsthand, our deal flow opportunities have never been greater. Given the environment, we can be highly selective, prioritizing later stage, derisked, to capital-efficient opportunities. Two areas of particular interest are software and companies that have some market traction.
Paradoxically, we believe this to be an excellent time to invest in early-stage ophthalmology and are continuing to raise capital in order to take advantage of these opportunities.
Closing Thoughts: Science Under Siege, but Not Defeated
This is a disorienting time for the life sciences. As Albert Bourla put it: “We are in a scientific renaissance. And yet, science is under threat.”
Public funding is shrinking. Regulatory agencies are unstable. Research institutions are being attacked politically and financially. Immigration—an essential component of our innovation economy—is being curtailed. Meanwhile, misinformation is shaping policy, and capital is becoming more reactive and risk-averse.
But in every crisis is opportunity. For those who understand the terrain—and are willing to play the long game—this is the moment to lean in, not pull back.
ExSight agrees with Bruce Booth, “The equity markets have collapsed in 2025, the IPO window is closed, the FDA is in turmoil, the NIH is being gutted… and it’s a great time to start new biotech companies. Why? Because there are so few being created today and there’s far less competition for biotech’s startup resources.” Depressed markets require discipline of both startups and their investors. Capital discipline and efficiency are core to ExSight’s DNA.
That sentiment was also echoed by Oaktree Partners, “Biotech firms currently face a quandary: amid a surge of innovation, drug developers are facing a severe lack of funding. This financing paradox unfolds against a backdrop of inherent sector volatility, amplified by turbulent macroeconomic shifts. For astute investors, however, this tension creates fertile ground for specialized financing opportunities.”
With eleven years of experience, ExSight is well positioned to take advantage of this environment and the opportunities presented.