Atlas Venture 2025 Biotech Review

Summary

Atlas Venture’s 2025 review outlines a volatile but improving macro and policy backdrop, resilient bio­pharma fundamentals, and a cautiously optimistic venture and exit environment. Atlas reports strong fund performance, disciplined portfolio management, and continued commitment to science-first, seed-led venture creation.

Action Items

• 2025–2027 – Pharma/biotech operators: Plan for accelerated onshoring of manufacturing capacity and address CMC quality to avoid FDA delays.
• 2025–2029 – Large pharma BD teams: Increase external sourcing to backfill $40–45B/year loss-of-exclusivity exposure via licensing and M&A.
• 2025–2029 – Biotech CEOs: Invest early in high-quality CMC and manufacturing to mitigate 50% CRL risk from quality issues.
• 2025–2029 – Western policy advocates: Continue policy engagement on NIH protection, drug pricing reform, immigration, and IRA adjustments.
• 2025–2029 – Western biotech leaders: Adapt to China competition by driving cheaper, faster, better R&D and operational execution.
• 2025–2029 – Venture-backed biotechs: Prioritize BD partnerships as a non-dilutive funding source and on-ramp to M&A.
• 2025–2029 – Atlas portfolio companies: Maintain pipeline discipline, concentrating capital on priority assets and clinical value inflection points.

Macro Policy and Industry Backdrop

• Policy environment since the last election described as unpredictable and unsettling, with policy “by tweet” increasing uncertainty.
• Drug pricing recognized as a legitimate problem; US has overpaid versus rich peers under a 40-year cross-subsidy model.
• Call for rebalancing: lower US prices, higher prices in other developed markets; skepticism about drastic “most favored nation” approaches.
• Large pharma trade deficit ($140B) and tax-driven offshoring to Ireland and Switzerland highlighted as structural issues.
• 75% of essential medicines for the US not manufactured domestically; $360B of onshoring commitments underway over 5–7 years.
• FDA facing instability: 20% staff loss and leadership turnover, but portfolio interactions largely stable with no systemic delays observed.
• FDA leadership signaling commitment to gold standard safety/efficacy, flexibility in rare disease, and innovation-friendlier posture.
• NIH viewed as crown jewel; 60,000 grants to 3,000 institutions annually; deep concern about drastic budget cuts.
• Recognized NIH improvement areas: publish-or-perish culture, reproducibility crisis, age barriers for young investigators.
• Administration’s antivaccine bias flagged as grave concern; emphasis on science-first, risk-based, data-driven vaccine policy.
• Additional macro concerns: data integrity, Fed pressure, geopolitics; message to “keep calm and carry on” with innovation focus.

BioPharma Sector Performance and Growth Drivers

• DRG and XBI underperformed S&P 500 through spring–summer; sector rebounded as macro fears eased.
• Pharma/biotech valuations at bottom of 30-year relative range versus market; potential upside from multiple expansion.
• Industry scale: 3.66 trillion defined daily doses administered last year, about one drug per person per day globally.

Growth Levers: New Products vs Existing Products

• Two main sales levers: launch new products, grow existing products; plus efficiency improvements.

New Drug Launches and Innovation

• On track for ~50 FDA approvals this year, in line with 10-year averages.
• Approvals include HIV PrEP, first-in-class pain meds, ADCs, hemophilia, RNAi products.
• Three new hereditary angioedema (HAE) drugs this year; from zero approved 20 years ago to 11 now.

Recent FDA Approvals – Key Characteristics

• 50% of approvals over last five years are for rare diseases.

• Just under half are first-in-class, validating ∼120 new mechanisms of action over five years.
• ~1 in 6 approvals use accelerated approval with surrogate endpoints to speed patient access.
• 85% of new drugs originate outside the largest pharma companies.
• ~2/3 of recent approvals have trials with <200 patients, highlighting targeted indications.
• 60% of small-company-originated drugs are launched by those small companies themselves.

Structured View of Innovation and Approvals

Pipeline Highlights and Atlas-Linked Assets

• Examples of notable pipeline assets across industry:
  • Takeda: orexin program for narcolepsy (internally discovered).
  • Merck: TL1A antagonist for IBD (via Prometheus acquisition).
  • AstraZeneca: oral SERD for breast cancer (internal).
  • Biogen/Ionis: antisense basket targeting Lp(a) for cardiovascular disease (collaboration).
  • AbbVie: Velsipity (IBD, strong data, internally discovered).
• Atlas-originated or associated externally sourced assets:
  • Lilly: Magramab (muscle-sparing obesity) via Versanis (Atlas portfolio).
  • Takeda: Zasocitinib (selective TYK2 inhibitor) via Nimbus (Atlas portfolio).

Emerging Atlas Clinical Assets (Select)

• Disc Medicine: bitopertin for rare disease; up for FDA approval; holds early priority review voucher.
• Kymera: KT-621, first-in-class STAT6 degrader; Dyne: DM1/DMD programs; further details implied.
• Kymera: immune-oncology/immunology focus; Dyne: DM1 and DMD; names mentioned in passing.
• Kymera: STAT6 degradation; Dyne: neuromuscular; Kymera and Dyne context blended in transcript.
• Kyverna? (Kylera referred): dual GIP/GLP agonist for obesity.
• Siona (Sciwind/Siona context): MB01 correctors (metabolic/bone) in phase 2 combination.
• Treventis (Trevent?) KK57 antagonist: barrier dysfunction in atopic dermatitis.

Existing Products: Pricing, Volume, and Indication Expansion

• Pricing no longer primary growth driver; net pricing projected negative due to competition and PBM pressure.
• Volume/indication expansion now central to value growth.
• Example products:
  • Vyvgart (FcRn modulator): started in myasthenia gravis; now pursuing multiple autoantibody diseases.
  • Vutrisiran (Alnylam): amyloidosis to cardiomyopathy; rapid uptake.
  • Tezspire: from asthma into broader indications.
• Indication expansion conflicts with some Inflation Reduction Act (IRA) provisions, flagged as policy issue.

Headwinds: Failures, Delays, Loss of Exclusivity

Notable Clinical Failures and Safety Issues

• Two IL-33 antagonists failed in respiratory disease.
• Two kappa opioid antagonists failed in depression.
• KarXT (Karuna/AbbVie) schizophrenia asset failure affected AbbVie and partner.
• Cargo Therapeutics next-gen CAR-T toxicity led to company failure.
• Obesity: Pfizer oral program and a Biogen-linked program both hit liver toxicity issues.
• Late-stage asset-centric failures at MoonLake and Kala led to ~90% stock drops.
• Estimated direct cost for 10 highlighted failed programs: ~$3.5B; total invested capital ~ $10B+.
• These failures underscore need for a pricing system that rewards risk-taking and funds attrition.

Delays via FDA Complete Response Letters (CRLs)

• FDA released 270 CRLs for ultimately approved drugs; 50% were for manufacturing/CMC quality issues.
• Strong message: underinvestment in CMC/manufacturing is a major, avoidable source of delay.

Loss of Exclusivity (LOE) Pressure

• Historical 5-year LOE: $10–15B/year global revenue at risk from generics.
• Next 5 years: LOE risk expected to triple to $40–45B/year.
• Several mega-franchises 5–7 years out from generic entry; 8–10 megablockbusters must be replaced annually.
• Internal discovery will not be sufficient; external innovation sourcing is critical.

Efficiency, R&D Productivity, and Operations

R&D Productivity Metrics

• Phase 1 to approval success rates remain ~6–7% across major modalities.
• Success rates have declined over last decade; low-hanging fruit of new modalities likely picked.
• Partnered assets show significantly better attrition metrics than wholly organic assets, implying higher quality bar.

Time and Cost

• Clinical development: 8–10 years from first-in-human to approval.
• Discovery + preclinical: 4–5 years, leading to 12–15 years idea-to-market timeline.
• McKinsey ROI analysis: previous year was lowest R&D productivity in 10+ years (after COVID/GLP-1 “blip”).

Operational Metrics and Capital Allocation

• R&D, COGS, SG&A as percent of sales expected to trend slightly down over next five years.
• Large pharma broad belt-tightening, restructurings, shutdowns of groups.
• Higher gross and EBIT margins anticipated as a result.

Share Buybacks

• Sector buybacks: $15–25B/year historically; $30B announced for 2025 alone.
• Purpose: return capital, optimize capital structure, support valuations.
• Notable participants: Exelixis, Neurocrine, and Arvinas (deployed ~$100M for buyback as part of restructuring).

Strategic Issues: China, Obesity, AI, Crowding, Modalities

China: Innovation and Competition

• China biotech market up ~90% year-to-date; large IPOs (e.g., Hansoh/Hengrui-type references).

• 40 companies filed to go public; strong liquidity and bullish sentiment in Hong Kong for biotech.

• Clinical trials: China grew from 5% of global trial starts 10 years ago to ~30% today, on par with US.
• In oncology, the entire global increase in new cancer trial starts since 2010 is accounted for by China.

China’s Growing R&D Footprint and Cost Advantage

• One-third of recent global licensing deals involve China; ~$130B total value in such deals.
• Talent flows: most leading Chinese emerging biopharmas have leaders trained and experienced in the West.
• Tighter US immigration/work visa policies risk accelerating brain drain to China.
• China remains a cost-effective place to build teams; 200-person companies can save tens of millions annually.
• Chinese regulators enabling faster-to-clinic strategies; Western biotechs must respond by being cheaper, faster, better.

Obesity

• Obesity pipeline highly crowded; ~one-third of programs target GLP-1 and related pathways.
• GLP-1s characterized as possibly the most impactful health pathway of this generation.
• Heavy investor enthusiasm has priced many obesity names “to perfection.”
• Examples:
  • Viking: minor profile blemish led to 42% stock drop (~$1B value) in a day.
  • Lilly: oral GLP-1 stumble triggered $60–70B single-day market cap loss.

AI in Drug Discovery

• AI/ML seen as transformative; about half of US GDP growth this year from AI-related investment.
• Drug discovery applications growing (design, target prediction, trial optimization), but hype outpaces realized impact.
• Protein–ligand co-folding case study:
  • Models perform well near training set chemistry/targets.
  • Performance deteriorates sharply with lower similarity; often worse than a coin toss.
  • Works well in known pockets; struggles with novel pockets and generative novelty.
• Conclusion: current AI mostly exploits known chemical/target “lamp posts”; true novelty remains challenging.

Hypercrowding and Competition

• 36 drug targets each have ≥50 programs globally; intense competition on almost all major mechanisms.

• Time to third-in-class entry shrank from ~15 years (25 years ago) to <2 years today.
• Many losers expected among crowded mechanisms; only a few best-in-class winners likely.

New Modalities: Promise and Risk

• Pipelines now contain many modalities (e.g., small molecules, biologics, ADCs, PROTACs, RNA platforms, cell/gene therapies).
• Large pharma averages ~12 modalities per pipeline, creating CMC, analytics, manufacturing, clinical, and distribution complexity.
• Commercial risk: despite eight cell/gene therapy cancer approvals, they represent only ~2% of global oncology revenues.
• Safety risk: nearly two dozen deaths linked to systemic gene therapies/editing (AAV and lentiviral) in recent years.
• Rationale for risk: potential for profound patient impact; examples:
  • Uniqure’s AAV for Huntington’s showing encouraging “real medicine” signals.
  • Individual “KJ” case: liver disease corrected via N-of-1 CRISPR gene editing.

Venture Capital and Biotech Funding Cycle

10-Year Perspective (H1 2015 vs H1 2025)

• 2015 H1: ~$6B VC into ~400 companies; early innings of IPO super-cycle; strong generalist participation.
• 2025 H1: ~ $12B VC into similar number of companies; post-bubble reset; investors felt burned until recent recovery.

Quarterly Trend and Capital Mix

• Peak deployment in Q1 2021: >$12B in a single quarter.
• Current steady state: $5–6B/quarter in US biotech VC (two-thirds of global VC).
• ~50% of capital now goes to mid/late stage (Series B and beyond).

Funding Structure and Risk Posture

• Concentration: ~8% of financings are mega-rounds (>$100M), consuming ~50% of all VC dollars.
• Mega-round pace remains elevated (~$600M/month), not fully reverting to pre-pandemic levels.
• Venture creation has reverted to ~2015 levels; many “tourist” creators have left post-bubble.
• Venture creation firms (like Atlas) remain active; affiliation increasingly important for seed/Series A success.

Risk Preferences: Talent, Geography, Business Model

• Talent: strong bias toward serial CEOs; Atlas is an exception, backing mostly first-time CEOs with prior industry experience.
• Geography: ~60% of US VC dollars go to a few zip codes (Boston, Bay Area).
• Business models: investors favor asset-centric plays with clear clinical and data line-of-sight; platforms need early partners.

Business Development and Exits

BD Activity and Rationale

• Number of BD deals has fallen vs five years ago, but total deal value has held up (fewer, larger deals).
• BD includes China-involving deals, single-asset deals, portfolio deals, US/Europe cross-border deals.

Benefits of BD

• Financial: asset dilution preferred to punitive equity dilution in tough markets; provides non-dilutive funding.
• Strategic: licensing builds relationships; ~80% of M&A starts as licensing.
• First bidders win ~80% of the time, reinforcing value of early partnership engagement.

M&A Environment

• Private M&A: expected $23–$25B deal value this year, among highest in past five years.
  • Deals across oncology (e.g., Scorpion), in vivo CAR-T, vaccines, and other areas.
• Public M&A: ~$90B YTD; expected to exceed $100B.
  • Robust deal flow in $5–10B range; examples include Avidity (Novartis), Medser (Pfizer) with competitive bidding (Novo).
  • Excluding single mega-deals (Seattle Genetics in 2023; Alexion in 2020), 2025 is the busiest year in six years.

Recycling into Capital Markets

• M&A proceeds recycle into VC and public markets, supporting equity demand.

IPOs and Public Market Dynamics

• Past five years difficult for biotech indices (BBC, XBI).
• 2025 had an initial IPO window in Q1 (8 IPOs total by November); most have performed well.
• Biotech indices rallied in last six months:
  • Clinical-stage index up ~60–70%.
  • XBI up ~30–40% since spring lows.
• Follow-on financings:
  • H1 2025 weak for follow-ons (pipes, RDs, marketed), but Q3 showed strong catalyst-driven activity.
  • October alone >$5B in follow-ons, largest month in ~18 months, exceeding Q1 and Q2 totals individually.
• Investor sentiment: generalists cautiously re-engaging; follow-ons mostly catalyst-driven with some opportunistic raises.

Public Company Universe Rationalization

• Number of public biotechs down ~20% from recent peak.
• Drivers:
  • Fallen-angel/bottom-feeding M&A buying distressed but valuable assets.
  • Activist acquirers (e.g., Concentra, Zoma) acquiring cash shells and R&D tax shields.
  • Boards choosing orderly shutdowns and cash return (e.g., Third Harmonic).

Overall Venture Sentiment

• Directionally positive: interest rate trends, fading macro risks, stabilizing FDA, positive data readouts.
• Venture creation constrained but stable; strong ideas still get funded.
• Capital available for building/scaling, though concentrated and with more conservative risk appetite.
• Exit environment: strong M&A momentum and improving equity capital markets suggest a promising 6–9 months ahead.

Biotech Within the Broader VC Landscape

• Biotech share of total VC down to mid-single digits for first time in two decades of Booth’s experience.
• Tech VC (AI/ML) expansion drives denominator problem; biotech slice smaller even if absolute dollars solid.
• Active private biotech investors (≥2 deals/year) dropped from ~900 at pandemic peak to ~400 in 2025.
• Remaining investors have raised capital: multiple funds closed by sector specialists, including Atlas.

VC Performance and Fundraising

• Top quartile biotech VCs continue to outperform XBI and Russell 2000 on 1-year and 5-year horizons.
• This outperformance supports fundraising for strong managers; new funds raised across the ecosystem.

Atlas Venture Update

Venture Creation and New Investments

• 16 new deals in past two years; 6 out of stealth and public/known; ~10 still in stealth.
• Seed and Series A financings across immunology, oncology, radiopharmaceuticals, autoimmune diseases, osteoporosis, others.

Scaling and Financing Portfolio Companies

• Multiple post-seed private financings; Kilara/Chilera series B at $600M was largest.
• Other portfolio companies also secured substantial equity funding.
• BD partnerships generated >$300M upfront cash to support early-stage assets and companies.

Atlas “Mini Pharma” Pipeline

• 130 declared programs across the portfolio, ~50 in clinical development.

• Pipeline size ~20% smaller versus two years ago, reflecting disciplined pruning and focus.
• Capital increasingly concentrated on priority programs and assets with highest potential impact.
• Portfolio remains disease-area and modality agnostic: rare disease, oncology, immunology, metabolic, CNS all represented.
• Strategy unchanged by market turmoil; continues to be science-first.

Exits and Realizations

• Two M&A exits:
  • Scorpion (private oncology) acquired.
  • Vigil (public) acquired.
• Sanofi acquired a portfolio company’s TLR7/8 frame 2 agonist Alzheimer’s program.
• Siona taken public in Q1; stock up ~90%+, with capital to execute on phase 2 trials.
• Third Harmonic wound down; capital returned to investors after board’s disciplined shutdown decision.

Financial Outcomes

• Atlas early-stage funds have outperformed XBI and Russell 2000 by 40–50%.
• Atlas opportunity (later-stage) funds also outperform these benchmarks.

Fundraising and Team

• Raised Atlas Fund 14 ($450M) in late 2024.
• Raised third Opportunity Fund in fall 2025.
• Emphasis on strong, deep investment bench and robust finance, ops, talent, and legal teams supporting seed-stage builds.

Strategy and Principles

• Seed-led venture creation, building companies around great global science executed locally.
• 100% focus on therapeutics.
• Double bottom line philosophy: doing well by doing good.

Decisions

• Industry-wide recognition to pursue manufacturing onshoring over 5–7 years despite complexity.
• Atlas and peers to continue emphasizing asset-centric investing and serial/experienced leadership in current cycle.
• Atlas committing to maintain science-first, disease- and modality-agnostic approach despite market volatility.
• Boards (e.g., Third Harmonic) willing to choose orderly dissolution when risk–reward is insufficient.
• Large pharma maintaining or increasing BD and M&A engagement as a core growth driver under LOE pressure.

Open Questions

• How will US drug pricing reforms ultimately rebalance global prices without undermining innovation incentives?
• Can FDA stabilize staffing and leadership sufficiently to maintain predictability and support innovation?
• Will NIH funding withstand political pressure, and can structural issues like reproducibility and age bias be addressed?
• How far and how fast will China’s cost and speed advantages reshape global biotech competition and talent flows?
• Can AI move beyond “lamp post” use cases to deliver true generative novelty and materially improve R&D success rates?
• Will new modalities achieve commercial scale commensurate with scientific impact, and how will safety risks be managed?
• Can venture and public markets sustain current momentum if macro conditions or AI/tech cycles reverse?
• To what extent will generalist investors re-enter biotech, and how will that affect valuations and capital availability?