The American biotech sector is undergoing a significant transformation, entering a new phase termed the “America-first resurgence”, According to a recent PitchBook report authored by Dr. Kazi Helal, Senior Research Analyst for Biopharma and Pharmatech . Starting in 2025, this era is characterized by protectionist tariff policies designed to incentivize domestic manufacturing repatriation, accelerate innovation driven by Artificial intelligence (AI), and enhance national security through advanced platform technologies. These policies are creating structural advantages for US biotech, although they may temporarily suppress mergers and acquisitions (M&A) activity as large pharmaceutical companies focus on manufacturing infrastructure.
According to the report This marks the third distinct phase in American biotech’s recent history. The period from 2020 to 2022, the COVID-19 era, saw an unprecedented influx of capital, rapid infrastructure growth, and accelerated project timelines. This was followed by the post-COVID correction from 2023 to 2024, a time of market rationalization, valuation adjustments, and the weeding out of speculative ventures, particularly in areas like point-of-care testing. Now, the sector is transitioning into the America-first resurgence from 2025 onward, driven by enhanced domestic capabilities through trade policies and significant AI integration into research and development (R&D) and manufacturing.
The current administration’s tariff policies lay out a framework for long-term American biotech dominance through core mechanisms: repatriation of critical manufacturing to bolster local capacity, acceleration of innovation focusing investor interest on advanced biomanufacturing and laboratory automation technologies that offer smaller operational footprints and greater efficiency to offset higher domestic labor costs, and national security enhancement by positioning biotech as critical infrastructure, particularly advanced platform technologies with defense applications.
However, the shift towards manufacturing infrastructure by large pharmaceutical companies could temporarily suppress M&A activity, impacting investor returns and leading to a more competitive fundraising environment for startups. This scenario may result in further market correction, concentrating investments into the most robust ventures. Despite these potential short-term pressures, the fundamental resilience of biotech suggests sustained growth.
Prime Investment Opportunities Emerge
Dr. Helal notes that Venture Capital (VC) investors are advised to target specific areas offering premium opportunities within this new landscape.
- AI-Driven Platforms: Companies leveraging AI to streamline drug discovery and regulatory compliance are highly attractive. Integrating computational tools with wet-lab validation can dramatically improve R&D efficiency by accelerating discovery and automating workflows and documentation. AI-driven platforms can also address regulatory burdens. Notable examples include Isomorphic Labs, which raised $600 million for AI drug design to expedite timelines, and companies like Weave Bio and BlueNote AI focused on optimizing regulatory processes and documentation.
- Compact, Automated Biomanufacturing: Significant VC opportunities lie in startups advancing production technologies with smaller footprints and increased automation to mitigate higher domestic labor costs, driven by the imperative for reshoring. Companies like Cellares, Cellino, and Elevate Bio are leveraging tech-driven process optimization, especially in cell therapy manufacturing, to gain competitive advantages.
- Supply Chain Resilience: Bolstering supply chain resilience is critical, particularly for traditional drug modalities such as generics and biosimilars, which are currently underrepresented in innovation investments. This requires domestic redundancy in areas like application programming interface (API) production, sterile manufacturing, and diagnostics. Concentrated investment approaches, exemplified by Resilience which raised over $1 billion, combined with government initiatives similar to those used for COVID-19 vaccine production, are necessary to bridge these gaps. Consolidation of existing infrastructure is another avenue.
Private Equity (PE) investors should focus on specialized infrastructure investments in high-value niches within biotech and pharma manufacturing. Consolidation deals are expected to expand due to ongoing cost pressures. Big Pharma’s increasing vertical integration is relevant, influenced by intense market competition, such as in obesity treatments. Opportunities include modular, rapidly deployable manufacturing facilities adaptable across modalities (small molecules to biologics) and software-defined manufacturing systems offering rapid reconfiguration and flexibility, both anticipated to command premium valuations amidst reshoring trends. The convergence of VC and PE investors may be needed for next-generation biomanufacturing and AI-automation bets to emerge as key winners.
Shifting Market Dynamics and Capital Flows
Tariff policies are reshaping pharmaceutical market dynamics, potentially favoring American-made products over foreign competitors. The shift away from relying on China for drug development and licensing could extend to approved products, with examples like Eli Lilly’s domestically produced Zepbound potentially gaining market advantages. While complete exclusion of international products is unlikely, government policies significantly influence formulary positioning and reimbursement strategies, impacting market shares. These dynamics also enhance PE investor value by promoting industry consolidation for more efficient drug development.
Current trade tensions mean cross-border licensing agreements face heightened regulatory scrutiny, with likely bipartisan support due to concerns like those addressed by the Biosecure Act, which limits the flow of expertise and capital outside America. US restrictions may emerge to limit cross-border asset acquisition and licensing. Investment in Asia-based pharma VC biotech has seen a sharp decrease, falling from $14.6 billion in 2021 to just $3.3 billion in 2024. While foreign assets might become more affordable, they carry increased political risk as policies potentially limiting cash flow to foreign nations may emerge.
Outlook: Positioning for Success
The biotech sector is strategically shifting towards capital-efficient, domestically focused models. In this protectionist environment, AI integration and manufacturing innovation will be key determinants of market winners. Early-stage investors should prioritize algorithmic innovation platforms, companies with domestic production capabilities, and solutions that reduce regulatory burdens. Other investors may continue to focus on short-term returns through late-stage clinical bets or public markets. Proposed pharmaceutical tariffs could increase imported material costs, prompting a shift to US production and potentially larger early funding rounds to mitigate supply chain uncertainties. Regardless, government involvement can dramatically transform the landscape, as previously shown by initiatives like Operation Warp Speed, pushing for select innovations of national interest while potentially slowing others.
