The market turbulence unleashed by President Donald Trump’s tariff policies will likely evaporate the trickle of biotech IPOs that were expected in 2025, a capital markets expert has told Fierce.
While the Nasdaq has recovered from a nosedive triggered by the announcement of President Trump’s global tariffs last week, the stock exchange is still down 15% so far this year. The severity of many of the planned tariffs has been reduced, but fears of an escalating trade war with China and tariffs being introduced for pharmaceutical products still loom large.
The additional volatility these statements have created for the markets in recent days has exacerbated an “already challenging year,” Adam Farlow, Global Chair of Baker McKenzie’s Capital Markets Practice Group, told Fierce Biotech in an interview this morning.
“No one was saying 2025 was going to be an awesome year for biotech IPOs, in particular,” he said. “Last week's announcements created additional volatility. Equity markets hate volatility, right?”
“People are going to get their head around what is happening and the volatility will dissipate,” he added. “I do think that's the way it's going to play out—but in the short-to-medium term, there will continue to be volatility,” Farlow said.
The early weeks of 2025 saw IPOs from the likes of obesity-focused Aardvark Therapeutics, cystic fibrosis company Sionna Therapeutics, and kidney-focused Maze Therapeutics. Metsera’s $275 million public offering in late January was the largest of the bunch, with the biotech earmarking proceeds for its GLP-1 weight loss asset.
But further Nasdaq debuts look unlikely in the near-term. One consequence of the stock exchange fluctuations has been a loss of equity for investors across all markets, which “can’t possibly be good for the IPO market,” Farlow said.
Looking for a potential upside, Farlow suggested R&D-stage companies could be viewed as a “safe harbor” by investors as they’re not exporting commodity goods across borders.
Meanwhile, biotechs that are already publicly listed may find it easier to continue to raise funds in this climate via selling shares to investors as “you already have a track record, you're in the market [and] people understand your story.”
However, “there is a question over whether that will continue to be true over the course of the year,” he added.
Another aspect of the uncertainty is the structural upheaval at agencies like the National Institutes of Health and FDA, which have seen mass layoffs. The impact of this on investor sentiment toward biotech is likely to depend on whether the changes lead to the “more nimble regulation” claimed as the desired outcome by the U.S. administration or merely results in “fewer people to answer the phone.”
In a recent letter to a Senate committee, more than 200 biotech leaders underscored the importance of a well-staffed FDA specifically for small companies, which are tight on resources and depend on investor funding to meet agency requirements.
“Any delays in FDA reviews will substantially impact these companies’ ability to secure the funding they need to continue to advance to the next stage of development; the extreme turmoil in the biotech financial markets reflects that investors are worried about our ability to execute,” the biotech stakeholders wrote.
The current ambiguity regarding the FDA's capabilities may trigger downstream uncertainty from investors questioning whether the agency is able to do its job, the authors said.
Despite the looming threat of tariffs on pharmaceuticals, Farlow said that Big Pharma is “the one area where I've seen the most positivity from the U.S. perspective.” He pointed to announcements in recent weeks from the likes of Novartis, Johnson & Johnson and Eli Lilly, which are all planning to expand their footprint in the country.
But with funding potentially becoming harder to access, are we likely to see the trend for biotech layoffs and closures accelerate in the coming months?
“It does feel like that's going to be a continuing story through this year,” Farlow responded.