Navigating biotech investment cycles — the true north: Guest Commentary
Biotech VC Uciane Scarlett on getting the right mix of platform-to-asset
The biotech sector begins 2025 with a striking dichotomy: record-breaking megarounds of concentrated capital deployment alongside an unsettling series of high-profile clinical failures. In 2024, nearly 100 nine-figure financings were heavily skewed toward companies advancing Phase II clinical programs, signaling a shift from 2023’s focus. This pivot toward mid-stage validation aimed to mitigate risk, but as concentrated bets funnel capital to a select few, vulnerabilities in this approach are increasingly evident.
Recent weeks have exposed these vulnerabilities, though only revealed via big pharma or public companies. High-profile Phase II/III failures — such as Roche’s tiragolumab, Cassava Sciences’ simufilam, BioAge’s azelaprag, and Neumora’s navacaprant — have underscored the potential outcomes of late-stage, capital-intensive deployment models. These public failures serve as a rare look into the risks investors are shouldering, risks that often remain obscured in private VC-backed companies.
The critical question is whether the market can sustain this level of concentrated risk-taking in the face of increasing clinical setbacks. The allure of focusing on fewer, larger deals lies in their promise of faster timelines to value creation, including delivery to patients and exit events. But as later-stage programs — often deemed safer bets — face their own headwinds, will investors continue on this path in 2025 and beyond? Or will we start to see a shift in strategy?
I would argue a shift is needed. Whether focused on platform scalability or de-risked late-stage assets, the biotech ecosystem delivers returns across cycles when stakeholders embrace balanced approaches.
The true north for VC funding appears to lie in a ‘steady state’ financing ratio of platform-to-asset investments — 2:1 globally or 3:1 in the U.S.
The true north for VC funding appears to lie in a “steady state” financing ratio of platform-to-asset investments — 2:1 globally or 3:1 in the U.S. Analyses utilizing BioCentury’s BCIQ database showcase venture capital exhibiting a historical preference for this steady state ratio, with the platform side of the equation representing earlier-stage investments and the asset side later-stage investments.
This ratio reflects the ability of VCs to deploy significant risk capital, aligning scalable platforms with shorter-term validation opportunities presented by late-stage assets. Yet, deviations from this balance, driven by innovation hype-cycles, economic shifts, or external market events, result in periods of exuberance or corrections before returning to the steady state. Two meaningful deviations were observed in the past 14 years: 1) post-financial crisis and 2) post-COVID pandemic (Figure 1).
Nonetheless, while VC investment takes swings outside of the steady state, individual exits — through IPOs and M&A — often achieve parity, with both platforms and assets commanding similar valuations, irrespective of shifts in funding priorities or exuberance in a specific category (Figure 2). This balanced outcome underscores the sector’s resilience and the ability to deliver value across cycles.
As we look ahead in 2025 and beyond, a return to steady state is anticipated for VC investments given continued funding of innovation, with the ratio of platform/early to asset/late VC funding recalibrating to its natural equilibrium.
Historical Patterns and Key Drivers
VC Funding Trends: Platform Dominance at Steady State
VC investments have historically oscillated in response to market optimism, scientific breakthroughs, and corrective cycles. Figure 1 illustrates how these oscillations consistently return to the steady state of platform-centric preference:
2010–13: Asset-Centric Swing (1:2 U.S. Ratio)
• Post-financial crisis caution drove VC funding toward late-stage, asset-centric investments, with a 1:2 platform-to-asset ratio globally.
• The emphasis on de-risked investments reflected broader economic caution, with fewer IPOs and a preference for late-stage M&A transactions.
• This period marked a surge in late-stage M&A, exemplified by Gilead’s $11 billion acquisition of Pharmasset.
2014–16: Platform Exuberance Returns Steady State (3:1 U.S. Ratio)
• A surge in platform investments brought the funding ratio of platforms to assets to 3:1 by 2016, driven by immuno-oncology breakthroughs and multi-asset pipeline scalability.
• IPOs like Juno Therapeutics underscored public market enthusiasm for platforms, while asset-centric IPOs like Axovant supported continued investor sentiments.
2017–19: Steady State (2:1 U.S. Ratio)
• VC funding rebalanced to 2:1, aligning with platform maturation and validation.
• M&A activity reflected valuation parity, with Novartis acquiring IFM Tre (asset-centric) for $1.575 billion and Vertex acquiring Exonics Therapeutics (platform-centric) for $1.015 billion.
2020–22: Pandemic-Driven Platform Exuberance (4:1 U.S. Ratio)
• The pandemic triggered an unprecedented platform investment surge, with VC funding reaching a 4:1 ratio globally. Advances in CRISPR, gene editing, and scalable vaccine platforms fueled this exuberance. Zero interest rates drove higher risk and duration tolerance.
• Platform companies like Moderna achieved record-breaking valuations, while preclinical Beam Therapeutics went public at nearly $1 billion. Smaller platform-centric companies were acquired; for example, MiroBio, where I sat on the board, was acquired by Gilead for $405 million in 2022.
2023–24: Returning to Steady State - Asset-Centric (2:1 U.S. Ratio)
• Over-indexing on platforms during 2020–22 saw early innovations driving limited exit opportunities and limited investor distributions in 2023 (~$6 billion in M&As vs. >$10 billion in prior 5 years) thus leading to a pivot towards de-risked late-stage assets. This trend is still in play and will likely continue to play out in 2025 and possibly early 2026 given historical 3–4-year cycles.
• However, high-demand and limited-supply dynamics have driven fierce competition for these asset-centric late-stage deals, as supported by attractive returns as seen by Merck’s $10.8 billion acquisition of Prometheus Biosciences.
M&A and IPO Insights: Valuation Consistency Across Cycles
Despite VC swings between platforms and assets, M&A and IPO valuations demonstrate remarkable consistency. Both platforms and assets command comparable exit values, underscoring their complementary roles (Figure 2).
IPO Performance: Parity Across Platforms and Assets
IPO valuations reflect similar trends, achieving parity irrespective of VC funding priorities. During the 2019–22 platform boom, Moderna’s IPO showcased platform-driven exuberance, while Axovant’s IPO during the 2016–19 steady state reflected asset-driven success.
M&A Trends: Balanced Valuations Across Strategies
Between 2010 and 2023, asset-focused M&A deals outnumbered platform-focused deals across public and private transactions (Figure 2 and Figure 3). Public M&A: Asset-focused deals (38) outpaced platform deals (13), yet average deal values were nearly identical (~$2 billion). Private M&A: Platforms saw fewer deals (49 vs. 106 for assets) but maintained comparable average valuations (~$525 million for assets vs. ~$440 million for platforms).
Supply-Demand Imbalances: Drivers of the Next Cycle
The current tilt toward asset-centric investments reflects broader supply-demand imbalances. Over-indexing on platforms has created a shortfall in late-stage, de-risked assets, while continued innovation ensures future demand for early-stage platforms.
Key drivers include:
1. Over-Indexing on Platforms (2018–21): A surge in early-stage platform investments during this period led to a reduction in maturing assets as many platforms failed to give rise to a pipeline. A critical challenge as current demand for such pipelines swells.
2. Pharma Asset Divestitures: Historically, divestitures in areas like immunology and oncology expanded the pool of clinical-stage opportunities and introduced reliance on a small number of high-demand assets. However, recent dynamics have shifted: Several U.S./EU pharma have reduced or delayed out-licensing activities due to VC-backed start-ups acquiring their licensed assets, only to later be bought by their competitors. I’ve personally encountered this challenge recently when pursuing clinical-stage assets for newco builds and portco pipeline development.
3. China’s Innovation Wave: China’s focus on IP and regulatory reform from 2012 to 2015, followed by the launch of China’s 13th Five-Year Plan (2016-20), which prioritized rapid biotech innovation, has contributed to China becoming an important source of clinical-stage assets for global pipelines. Many Chinese companies are seeking access to U.S. and EU markets due to economic challenges in commercializing high-priced therapies at home, often willing to partner their assets at valuations below U.S. companies. China’s current assets consist of complex biologics — multi-specifics or YTE-modified — targeting established targets or best-in-class plays, with limited first-in-class programs. As de-risked targets and programs become scarcer, it’s unclear how long China’s pipeline will support global demand. Notably, the 14th Five-Year Plan (2021-25) emphasizes disruptive technologies, likely leading to earlier-stage innovations.
4. Investor Appetite: Several VC funds have emerged, specifically focused on late-stage, asset-centric deals, while existing firms have repositioned their strategies to capitalize on these investments. This shift has created high demand for a limited supply of such deals.
5. Pharma Beginning to Signal Interest in Earlier-stage Innovations: Novartis CEO Vas Narasimhan recently said, “Preclinical, Phase I, Phase II area — that’s the opportunity where we can step in” and Novartis can add value to the acquired company. He added that it’s challenging to “find synergies, harder to justify” with later-stage candidates (November 2024).
6. NIH Funding Stability — Likely to Fuel Future Innovations: Steady NIH funding (~$30 billion in 2010–17 and ~$40 billion in 2018–24) ensures foundational research to drive future breakthroughs.
2025–27 Outlook: Recalibrating to Steady State
Outside of macroeconomic factors, by late 2025 or early 2026, the biotech sector is expected to return fully to its steady state of 2:1 platform-to-asset VC funding globally or 3:1 in the U.S. This recalibration reflects the sector’s natural rebalancing of risk tolerance and capital deployment cycles.
Platforms will continue to play a crucial role in rebuilding the innovation funnel for VCs:
• Advances in autoimmunity, AI, and cardio-metabolism will continue to drive platform-oriented solutions, addressing critical therapeutic needs, e.g., platforms that solve pharmacology, tissue-specific delivery, or therapeutic-index challenges.
• VCs will continue leveraging partners like Alloy Therapeutics or develop internal engines like at Flagship Pioneering to facilitate efficient drug discovery and accelerate pipeline maturation. These models enable time and cost savings while achieving quality known to be at the core of early-stage venture capitalists.
• Economic recovery, lower interest rates, rational entry valuations, and increased risk tolerance will create favorable conditions for platform-heavy portfolios, while assets will continue to deliver near-term and consistent exit opportunities.
Strategic Lessons for Stakeholders
To navigate the likely return to steady state, stakeholders should consider the following:
Venture Capitalists: Maintain balanced portfolios that include scalable platforms and de-risked assets. Embrace hybrid models that integrate platform scalability with asset validation.
Biopharma Companies: Replenish pipelines through partnerships with academia and early-stage innovators. Focus on therapeutic areas where platforms and assets provide complementary value and proprietary clinical and commercial capabilities can be leveraged more quickly through acquisitions or build-to-buy models.
Institutional Investors: Prioritize nimble, highly focused fund managers adept at navigating cycles and identifying high value exits. Especially small funds which can achieve outsized returns when flexible enough to respond to market conditions. Emerging funds in established (e.g., Kendall Square) and emergent (e.g., Texas) innovation hubs are well-positioned to capitalize on the eminent resurgence
Conclusion: The Sweet Spot of Biotech Investments
The steady state of platform-to-asset VC funding — 2:1 globally or 3:1 in the U.S. — represents the biotech sector’s “true north,” a guiding equilibrium that maximizes innovation and investor returns across cycles. This balance enables VCs to deploy risk capital effectively, fostering scalable platforms while ensuring consistent exits through late-stage assets.
The key question is what will happen going forward. Are we on a downward trend that will go much south of 2:1 (only really surpassed by the period right after the financial crisis) or will activity remain within the window of “steady state”? There are still macroeconomic uncertainties that may give rise to larger swings or deviation from steady state, e.g. geopolitical, interest rates not lowering as anticipated.
As the industry recalibrates from the concentrated bets of recent years, embracing this true north will be pivotal. This isn’t merely a correction—it’s a reaffirmation of the balanced strategies that work best for investors, innovators, and patients alike. The trend observed in 2023–24 is a reminder that the biotech ecosystem thrives when guided by the compass of steady-state principles, ensuring sustainable innovation and equitable returns across cycles.
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Uciane Scarlett was most recently principle at MPM BioImpact and has also held roles at Oxford Sciences Enterprise and Atlas Venture. Her investments have included clinical-stage, asset-centric ashibio Inc. and early-stage platform-centric Dyne Therapeutics Inc. (NASDAQ:DYN).
Data Insights sources in this article: LEK (public companies) + BCIQ (private companies, VC investments). Analyses completed by LEK and Uciane Scarlett.
Signed commentaries do not necessarily reflect the views of BioCentury.