This article was originally published on April 1, 2026. It has been updated to reflect recent developments.
After a rough past few years, the biotech sector looks to be turning a corner. Major pharmaceutical companies have hit fresh highs this year off the back of scientific breakthroughs-the most recent being a promising cancer vaccine from Moderna.
Moderna's stock was up 84% Wednesday morning on its announcement of the first ever successful Phase 3 trial for a cancer vaccine. Before Wednesday, Moderna was struggling to rebound from a multi-year stock-price low that followed its surge in 2021.
Moderna's story is emblematic of that of the broader biotech space. As pharma companies raced to develop a Covid-19 vaccine, the industry boomed. Investors eager to capitalize on the momentum poured money into biotech companies and sought opportunities to back new drugs, regardless of where they were on the path to clinical success and regulatory approval.
But the sector struggled to maintain the fervor in years since. Market sentiment has been cautious at best. IPO activity and venture capital funding for biotechs, particularly those backing more exploratory new treatments, dropped off meaningfully.
At the peak of the biotech boom in 2021, more than half of the 104 companies that went public in the U.S. were either preclinical or in Phase 1 trials-the earliest stages of testing for new medicines-and therefore the most speculative stage from an investment standpoint. By 2024, the number of new offerings had dwindled to 24. Last year, only 11 biotech companies joined the market. Just one was a company whose leading drug candidate was in early-stage trials.
VC biotech activity experienced a similar drop off. Venture firms invested just shy of $50 billion across 2,413 biotech deals in 2021 in the U.S. That fell to $14 billion across 702 investments in the first half of 2025.
The sector lost enthusiasm for a variety of factors, including the underperformance of many of the early-stage companies that went public over the past few years. Macro factors, such as an uncertain regulatory environment and drug pricing policies, also created headwinds-although it is starting to feel like the worst of those issues are in the past.
Some uncertainty around the Food and Drug Administration remains, including the leadership of the new nominee to lead the agency, Heidi Overton. But we believe scientifically rigorous and evidence-based approaches will win out this year. Good drugs that address unmet medical needs, such as a vaccine against cancer, won't sit on shelves. That is good news for the venture firms seeking liquidity and for a stock market looking for promising growth stories.
Perhaps the most promising and significant medical trends of recent years is the widespread uptake of obesity drugs.
The stock prices of Eli Lilly & Co. and Amgen have performed well over the past year, largely due to their work on obesity. Eli Lilly announced this spring that their oral obesity drug will enter the market soon. Eli Lilly, Amgen, and Novo Nordisk have said they plan to unveil late-stage clinical trial results for next-gen obesity treatments this year. This bodes well for investors looking for exposure to blockbusters and for M&A activity, as incumbents and challengers position for their share of the obesity market.
Arguably the biggest unmet need in biotech are dementia therapies. Effective treatments, let alone a cure, for Alzheimer's and other neurodegenerative diseases have been extraordinarily difficult to develop, but that may change soon. Drug candidates aimed at treating Alzheimer's are due to present late-stage clinical trial results this year. The industry is hopeful that at least some of these candidates will show effectiveness in slowing or reversing cognitive decline.
A host of other potential new dementia treatments in development will follow these trailblazers, and these too may attract excitement among private and public market investors. The two go hand in glove. An active IPO market provides encouragement to venture capital players of the viability of that route as an exit possibility, as well as providing a guide as to which therapeutic areas are of most interest to the stock market.
While policy can always shift, the industry remains grounded in an evidence-based approach that supports long-term biotech investing. For investors burned by recent experiences of false hope and over-exuberance, this year is more likely to be one where expectations are reset.
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Nilesh Kumar is head of biotech private investments at Wellington Management.
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