Why 2026 Could Be a Breakout Year for Private Biotech Funding

Maryam Daneshpour
2 days ago
3 min read

After a difficult 3 years of private biotech funding for early-stage biotech companies (FN1, FN2), we predict that 2026 will be a breakout year. Why?

1. Public smid-cap biotech stocks soared in the 2nd half of 2025;

2. Historical data shows that when public smid-cap biotech stocks soar, the biotech IPO market opens up the following year;

3. Once the biotech IPO market opens, private funding should follow in subsequent quarters

1. Public smid-cap biotech stocks soared in the 2nd half of 2025

Public biotech stocks went on an impressive run in the 2nd half of 2025 (Fig 1).

**Fig 1. Stock price chart of the major biotech indices (XBI and IBB)**

2. When public smid-cap biotech stocks soar, the biotech IPO market opens the following year

The biotech IPO market has been closed since 2021 (Table 1). We believe that this is likely to change in 2026.

Year	XBI Return %	Biotech IPOs
2015	13.58	42
2016	-15.45	25
2017	43.77	32
2018	-15.28	59
2019	32.56	47
2020	48.33	79
2021	-20.45	104
2022	-25.87	22
2023	7.6	19
2024	1.01	24
2025	35.9	11

TABLE 1. Public smid-cap biotech returns and biotech IPOs 2015-2025

We analyzed historical data to confirm that when smid-cap biotech stocks soar, the biotech IPO market opens the following year. Biotech IPO activity does not respond immediately to changes in public biotech market performance. When IPO counts are compared with same-year XBI returns, the relationship is weak (See Table 1 and Fig 2 below. Same-year Pearson correlation (2015–2025): ~-0.07). This helps explain why IPO activity often remains subdued even after public biotech indices begin to rise.

**Fig 2. Biotech IPOs vs. Same year XBI return**

By contrast, when IPO activity is compared with prior-year XBI performance, the relationship becomes clear (Fig 3).

Prior-year Pearson correlation (2016–2025): ~0.76
Strong public-market years are followed by higher IPO issuance
Weak public-market years are followed by IPO slowdowns

This lag likely reflects IPO preparation, investor marketing, and pricing dynamics. Thus, an increase in IPO filings Issuance responds to validated market strength, not contemporaneous conditions, and typically unfolds over subsequent quarters after the public biotech market indices and ETFs (e.g., XBI and IBB) rise, rather than immediately.

Fig 3. Biotech IPOs vs. Prior year XBI return

3. When the IPO market opens, private funding follows in subsequent quarters

Not surprisingly, with the closed biotech IPO market since 2021, private biotech funding in terms of the number of deals and early-stage deals has been down in subsequent years through 2025 (FN1, FN2, FN3, FN4). However, we expect this to turn around in 2026.

Here’s why: It is generally believed that once the IPO window for a sector opens, funding follows. This makes logical sense because once an IPO market opens, (a) liquidity/distributions improve, (b) fundraising becomes easier, and (c) valuation comps and exit confidence return (FN4, FN5). Thus, with the likely opening of the biotech IPO market in 2026, we believe that private deal-making will substantially increase too.

Conclusion

In summary, we believe that the smid-cap biotech public market surge in the second half of 2025 bodes well not only for a reopened biotech IPO market in 2026 but also for a surge in private funding in later quarters of 2026 as well.

Footnotes

1. BioPharma Dive (PitchBook data) — Venture funding, dealmaking slowed in biotech

2 . HSBC Innovation Banking — Venture Healthcare Report: Mid-Year 1H 2025

3 . Gibson Dunn — Q2 2025 Life Sciences Capital Markets Recap

4 . Silicon Valley Bank / GVB — Healthcare Investments & Exits Mid-Year Report 2024

5 . PitchBook–NVCA — Q4 2024 Venture Monitor Webinar