Biotech investors have spent most of 2025 tightening their belts — dodging volatility, waiting out FDA turnover and watching the sector stock index continue its long slide. But in the middle of a battered quarter, one company landed a funding round that looked more like a tech unicorn deal than a life sciences play.
Isomorphic Labs raised $600 million in March to expand its artificial intelligence platform for drug discovery, marking the largest private biotech funding round of 2025 so far.
Backed by Alphabet, the company said it would use the capital to build out teams in London and California and advance its experimental compounds toward the clinic. The size and ambition of the deal stood out in a quarter where overall sentiment across the biotech sector was far less buoyant.
According to investment banking firm Jefferies, just 41 percent of major biotech events in the first quarter were judged positive by the market, one of the weakest showings in recent years. Public market activity remained muted, with most small and mid-cap stocks trading down even after favorable clinical or regulatory news.
“Even positive data isn’t always rewarded,” Jefferies analyst Michael Yee wrote, noting that roughly 60 percent of stocks traded down in the days following favorable news.
Still, investors showed a willingness to back ambitious AI-first platforms. The AI in life sciences market is projected to grow at a compound annual rate of 25 percent through 2029, driven by its expanding role in drug development, personalized medicine, and predictive analytics, according to a 2025 market outlook published on PharmiWeb.com.
“AI is rapidly becoming a cornerstone of innovation in healthcare,” the report said.
A Rough First Quarter for Biotech
The broader biotech sector entered 2025 under pressure and the first quarter did nothing to dispel the gloom. In addition to ongoing capital constraints, investors faced mounting uncertainty from Washington.
A wave of resignations at the FDA, including among staff responsible for reviewing new drug applications under the Prescription Drug User Fee Act (PDUFA), left companies and analysts wondering whether regulatory timelines could slip.
Adding to the unease were sweeping federal layoffs and funding rollbacks that disrupted the nation’s biomedical research infrastructure. These included 10,000 government job cuts, slashed support for NIH-backed institutions, and ongoing legal battles over new federal cost caps on university research grants. (Read more in Mayhem, Destruction and Biomedical Tumult from Trump Cuts and NIH Funding Cutbacks Worry Scientific Community.)
On Wall Street, the SPDR S&P Biotech ETF (XBI) continued to slide, falling nearly 10 percent in the first quarter of 2025. The decline extended a multi-year slump that has wiped out gains for many early- and mid-stage biotech companies and kept investor sentiment cautious across much of the sector.
“Profit-taking on positive events and few buyers after negative data sell-offs” defined the quarter, Jefferies wrote, calling it “a bearish environment” for the space.
AI’s Outlier Momentum Surges Ahead
While much of the sector struggled, one category surged ahead: biotech companies with AI at their core. Isomorphic Labs’ $600 million was led by Thrive Capital with participation from GV and Alphabet. The company said the funds will advance its next-generation AI drug design engine and move several internal programs into the clinic, including candidates in oncology and immunology.
Insilico Medicine, a Cure Collaboration Resident company, also advanced its funding with a $110 million Series E round, aimed at expanding its generative AI platform and progressing its idiopathic pulmonary fibrosis candidate. Insilico said its proprietary system, Pharma.AI, has helped slash early drug discovery timelines from years to months.
Other companies are finding similar traction. Ampersand Biomedicines raised$65 million to expand its computational platform for tissue-targeted biologics, including two lead programs expected to enter IND-enabling studies later this year. And at Character Bio, CEO Cheng Zhang used the company’s $93 million Series B announcement to explain its broader mission.
“If we can understand what drives disease progression at the genetic and clinical level, we can create better, more targeted treatments,” Zhang wrote in a blog post about the funding news.
Beyond AI, Other Conviction Bets on Platform Companies
AI may have led the quarter’s biggest headlines, but it wasn’t the only area where investors showed interest. Several platform companies focused on pain, oncology and metabolic disease also secured large checks.
Latigo Biotherapeutics raised $150 million to advance its non-opioid pain drug, part of a growing wave of investment into Nav1.8 inhibitors, a class of highly specific sodium channel blockers, following the FDA approval of Vertex’s Journavx. The deal signaled momentum around a new drug class that could shift how chronic pain is managed.
In oncology, Callio Therapeutics closed a $187 million Series A to support its work on next-generation antibody-drug conjugates (ADCs), including multi-payload formats designed for HER2-positive tumors. It was one of the largest first-time raises of the quarter.
The cell and gene therapy sector, while quieter than in recent years, still drew support for standout assets. Abcuro raised $200 million to move forward in muscle and autoimmune diseases, and Umoja Biopharma brought in $100 million to expand its in vivo CAR-T platform. A recent study found that durable cell and gene therapies are more than twice as likely to receive FDA approval than other drug types when entering Phase I, with 19 percent versus 7.3 percent for other modalities, according to an analysis in Nature Reviews Drug Discovery, providing additional justification for investment in the drug class.
What Investors Should Watch Going Forward
Investors entering Q2 are favoring companies with strong Phase 2 data, clear paths to market, and differentiated platforms in trending areas and indications. Funding for complex, capital-intensive modalities like gene therapy may become more selective, while interest in scalable drug discovery platforms remains high.
And despite the challenging investment climate, AI continues to stand apart—not just for its speed or novelty, but for its perceived potential to reshape biopharma productivity.