After a surge of capital during the COVID-19 pandemic, the biotech industry entered a prolonged correction marked by tighter funding conditions, increased competition for investment, and growing scrutiny of business models. At the same time, new forces have emerged that are reshaping the global innovation landscape, including the rapid rise of China's biopharmaceutical sector.
Jon Rees has observed these changes from multiple perspectives. A biochemist and molecular biologist by training, he has founded several companies, helped raise capital across several ventures, and played a key role in the financing of Ducentis Biotherapeutics before its acquisition in 2023. Today, he serves as CEO of MitoRx which he cofounded, a UK-based biotechnology company developing a novel therapy to restore mitochondrial metabolic health in high-risk obesity, promoting fat loss while preserving lean muscle mass.
Here, we speak with Rees about the post-COVID-19 funding environment, how to navigate amid evolving investor expectations, and the growing influence of Chinese biotech.
You've helped companies raise capital and founded several businesses yourself. How has the fundraising landscape changed over the last five years?
I think there was an old normal up until COVID-19. There were quite a number of VCs, especially in the UK and Europe, which is the market I am most familiar with, but also in the US, deploying capital into companies at different stages. There was always less money going into the very earliest stages, but funding was being deployed across the board.
Then COVID came along and a lot of money flowed into the sector, including capital from outside life sciences. Unfortunately, things reached a point where, on average, you were going to lose money if you invested in COVID biotech. Once the winners and losers in COVID crystallized, investors began pulling back quite significantly.
There were signs of recovery during 2025 – but I think some of that recovery was undermined by broader events in the market. Overall though, I would say early-stage biotech investing is still in a recovery phase for the past year – and that has been most palpable over the last six months.
One thing that sits underneath all of this is that allocations to seed-stage and pre-Series A companies remain relatively small over the last couple of years. As a result, family offices and angel investors have stepped in to fill part of the gap – certainly here in Europe. That's provided alternatives for some early-stage companies like MitoRx, but it doesn't solve the conundrum of how you finance the development of a new drug from private capital.
Is it more that there is less money available now, or are investors asking for different things from companies?
The point at which companies can attract investment has moved later. Investors generally want more validation before committing capital.
We're also in a clear-out cycle for VCs themselves. Some fund management operations have failed to generate sufficient returns from previous funds and won't be able to raise again. As a result, some of the organizations deploying capital in the future won't be the same organizations that were deploying it before.
One positive change compared with the downturn I lived through between 2008 and 2011 is that people are much more upfront in general. The VCs who haven't raised a fund, and may never raise another one, will often tell you immediately that they have no capital to deploy, which prevents a lot of wasted time for entrepreneurs.
What would you say are some of the underlying causes of the current downturn in the cycle post-COVID?
It is said that part of the investment retraction seen in 2025 was a direct response to rhetoric in the US, especially associated with the Inflation Reduction Act and the public discourse around drug pricing.
The effect was that LPs looking to deploy capital into different asset classes became more cautious about biotech venture capital funds, so became more difficult to achieve the asset allocation required to raise drug development venture capital funds. The knock-on is that some life sciences VCs have moved into , portfolio maintenance, and are targeting lower risk clinical-stage assets. That meant there was less capital available for earlier-stage companies. It’s a flight from risk, following on the heels of the overinvestment that occurred during COVID-19, particularly in antivirals and vaccine technologies, many of which were never going to find a sustainable commercial market.
How did pharma companies react the political debate in 2020?
We saw companies volunteering discounted pricing under pressure and making inward investment choices into the US. Even a disorganized drug pricing negotiation process has an impact if companies are publicly criticized for charging the American public too much. The US remains the biggest drug market in the world. Of course, companies tend to model the seven major markets, but the primary market has always been the US for therapeutic medicines. So if there’s downward pressure on pricing, it has a pass-through economic impact. The supply of capital into the venture capital, the funding “tap,” gets turned down.
Is the rise of China over the last five or so years having an impact on the wider drug development industry?
Yes. What's interesting is that it's having an impact in more than one way – almost in opposite ways. Fifteen years ago, one might have gone around US and European universities looking for intellectual property to develop. Now, there's a massive market in innovative IP coming out of China. You can start a Western biotech company exclusively around Chinese-origin assets without speaking to a Western university, so that's a very interesting development. Earlier in my career, it wasn't unusual for a university technology-transfer to try to charge 50 percent equity for an IP license with regressive clawback provisions – that's not what you're going to get in China. I think there are some fantastic opportunities there.
Then there's the reverse dynamic. I remember attending JPMorgan in 2024 and seeing the level of innovation coming out of China and Southeast Asia in general. There were so many biotech companies from the region present and it challenged some people's expectations.
There were arguments made afterwards that reflected a more protectionist perspective, questioning whether these companies should really be let in to play around that week in SF in January. But the reality was that they were generating demand and interest from global pharma, including major US and European firms.
With limited capital, some of these companies can get quite far and run what might be considered abbreviated development programs. They’re changing the competitive landscape in early-stage and early clinical-stage development. It’s really exciting. If your focus is on developing medicines for patients, then greater diversity in intellectual property, licensing opportunities and sources of innovation has to be a good thing. It's translational competition, and competition is healthy.
The other part is cost. Drug-development costs have become inflated. In financial planning it isn't unusual to assume laboratory consumables would increase by 10 percent annually. It's pretty crazy. CRO costs can rise to whatever the market will bear. The rise of China-based CROs challenges that. It introduces competition into areas where suppliers may have been able to increase prices year after year. That helps reduce the global cost base and benefits from economies of scale. But I also think it could be an existential challenge for some Western CROs.
Are we just at the cusp of that trend?
Yes. Experienced teams are actively going into China and licensing assets, and that's a relatively new – and I think great – model. Chinese pharmaceutical companies have also become alternate buyers alongside the major global pharma companies. Biotechs now have another potential acquirer, particularly for China rights. Chinese companies can acquire rights, continue development and potentially sell assets back to multinational pharmaceutical companies later.
What does an early-stage drug development company need to get right to raise capital in today’s environment?
I think it's more important than ever to have an excellent team, and ideally international representation among the advisors. The reality is that there's less money chasing a larger number of assets so investors don't have to invest. Unless a team is tip top – ideally, with experience bringing drugs to market – they can just walk away.
We just completed a financing round at the end of 2025. What was important for us was having a differentiated asset with characteristics that clearly addressed an unmet need. Earlier in the company's evolution, we had compelling data around muscle protection and were targeting a rare disease indication, but it was in a relatively small patient population and there was significant competition. What really worked for MitoRx was listening to the buyer’s market. At JPMorgan in 2024, we listened to what potential partners and buyers were telling us. The feedback was that the muscle functional preservation effect was interesting, but there wasn't as strong enthusiasm for that particular rare disease market. If we could show the same effect in obesity, there would be interest. We could also see that the biology made sense and that obesity represented a vastly larger market opportunity. So we pivoted into that market and were able to raise on the basis of the data we generated thereafter. The lesson is that success often comes from responding to market demand rather than pushing technology.
Where do you see the funding environment going next?
If the destabilization and volatility of the public markets is contained as a result of a resolution of current affairs, I would expect the investment into private biotech companies in Europe and the UK to continue recovering. The alternative is that we see a significant public-markets correction or something worse. In that environment, competition for capital becomes even more intense and some technologies that should be developed may struggle to raise funding. But at the moment I don’t believe we’re there. I think it's just intense, which is probably how it should be. Only the best opportunities receive funding.
Is there anything governments could do to help industry?
If we consider the UK, where I’m based, many established funds have moved later-stage and don’t really focus heavily on early-stage investing, which means there’s greater opportunity for EIS funds and smaller investors, but it’s not a very competitive ecosystem. When it comes to innovation, I don't think it's a fully functioning market.
I don't have all the answers, but I do think there's a case for increasing the tax incentives for private investors willing to back high-risk businesses. Why should individuals put their money into companies where there's a high percent risk of failure without such incentives? Another answer for UK entrepreneurs is to spend more time in the US, where the risk appetite and appetite for novelty is greater.
We saw during COVID-19 that governments can allocate enormous sums when they decide something is important. In the UK, I believe £36 billion was allocated to diagnostics, which was possibly £26 billion more than was needed. Imagine what a £25 billion fund could have done for UK life sciences over 10 years? I’ve got no doubt it would have ensured that UK industry would have been larger than any other in Europe for the future.
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