The Preclinical Arbitrage

If you’re raising capital as a preclinical biotech company today, the market is sending a clear signal: come back when you have more data. But that signal may be creating one of the more interesting investment opportunities in the sector right now.

The market wants human data, near-term milestones, and visible de-risking. It is willing to pay dearly for all of it. The result is one of the clearest dislocations in early-stage biotech: a market overpaying for proof and underpaying for scientific edge. Companies that are surviving the biotech winter are sitting at entry prices that look unusually favorable relative to their eventual strategic value. For those willing to underwrite the science earlier, that is an opportunity.

Patent Cliffs Make Early Science More Valuable

The strategic backdrop matters. Roughly $300 billion in pharma revenues are at risk from patent expirations by 2030.¹ The scale is striking: Merck’s Keytruda ($29.3 billion in 2024 revenue) faces biosimilar competition beginning in 2028. Eliquis ($13.2 billion, BMS/Pfizer) begins losing exclusivity in 2026, starting in Europe. Stelara (over $10 billion at peak, J&J) is already under pressure.² These are not peripheral products. They are the revenue engines of the world’s largest pharmaceutical companies.

Figure 1: Historically, ~23% of biopharma revenues remained under patent protection 10 years post-launch. That figure is expected to fall to ~10% by 2034—highlighting the scale of the coming patent cliff and the urgency for new asset creation.³

More than 70% of new drug revenues have come from externally sourced products.⁴ Pharma cannot R&D its way out of a $300 billion gap. It needs to buy, license, and partner its way through it.

Future franchises do not appear at Phase II. They begin as target insights, platform capabilities, and early translational packages. If pharma’s long-term need is replenishment, high-quality preclinical science is not peripheral to strategic value: it is upstream of it. The companies that will define tomorrow’s acquisitions are being built and priced today.

Capital is Crowding into Certainty

Across 2024 and 2025 alone, nearly 180 venture rounds in biopharma exceeded $100 million.⁵ Those mega-rounds now represent approximately 66% of all biopharma venture capital deployed,⁶ up from just 35% in the pre-pandemic period. Bigger rounds, fewer companies, concentrated in assets that can tell a short, legible story to a cautious market.

Figure 2: Early-stage biotech is becoming a smaller share of total venture activity—even as median deal sizes rise—indicating a shift away from funding new preclinical companies toward larger, more de-risked “early-stage” bets.

The result is a market that pays aggressively for reduced uncertainty. When Pfizer and Novo Nordisk entered a bidding war for Metsera, a clinical-stage GLP-1 company, Pfizer paid $10 billion, a price requiring analysts to assume nearly $11 billion in peak revenues by 2040.⁷ That willingness reflects how aggressively the market prices clinical certainty in high-conviction therapeutic areas. The flip side: earlier-stage companies developing the next generation platforms or novel mechanisms are comparatively under-owned, financed in an environment dominated by caution and syndicate scarcity.

That does not make them low risk. It does create better entry points for investors who can judge scientific quality before the broader market is ready to.

Neglect is Not The Same as Weak Science

The 2020–2021 boom sent too much capital into early-stage biotech with too little underwriting discipline. Companies raised large rounds on platform promise, built ahead of the science, and missed clinical milestones. Investors got burned. A reset was needed.

Figure 3: Biopharma venture funding has shifted from peak-era volume to a more selective model—deal counts remain well below 2021 highs, while capital has stabilized and is increasingly concentrated in fewer, higher-conviction investments.

The question is whether it has gone too far. Today’s market applies the same discount to companies that burned through cash and delivered nothing and to companies that have quietly done real work through years of constrained capital. That indiscriminate repricing is the opportunity: not in excusing poor science, but in recognizing that the market is systematically undervaluing the good alongside the bad.

Late-stage assets have commanded record premiums. Early-stage companies have cut staff, narrowed pipelines, and rationalized operations. Beneath that surface, important biology is still advancing: in academic labs, in startups operating quietly, in companies that have survived by doing more with less. The gap between what is being built and what is being funded has widened. That is where interesting investments live.

Figure 4: Across stages, capital is increasingly skewed toward later-stage companies: both deal sizes and valuations are expanding most at the clinical and growth stages, while pre-seed and seed remain comparatively constrained.

This is An Underwriting Arbitrage

Pharma needs external innovation. Capital markets are rewarding later-stage clarity. Preclinical companies are being priced off current financing conditions rather than eventual strategic relevance. When long-term demand is real but near-term financing is selective, price can detach from value. That detachment is the opportunity.

The headline numbers obscure more than they reveal. PitchBook’s 2025 pre-seed/seed median is $5M; the early-stage VC median comes in at $26.6M.⁸ Both are accurate. Neither reflects the full distribution. Rounds like Xaira ($1B), Dispatch Bio ($216M), Lila Sciences ($200M), and Stylus Medicine ($85M)⁹ are not seed financings in any meaningful sense: they are pharma-structured NewCo launches, asset-backed from inception, often with a strategic anchor and a pre-negotiated exit pathway already in place. Strip those out, and the typical early-stage biopharma company is raising in an environment far more constrained than the headline number suggests.

Figure 5 shows 80 named biopharma seed and early-stage rounds closed in 2024–2025. The vast majority raised below $50M, yet a small cluster of outlier rounds above $200M. The top deals (Xaira, Isomorphic Labs, Mirador, Verdiva) clearly show how clustered the distribution of funds is. Entry prices for the typical early-stage biopharma company remain modest.

The economics compound in one direction. Pharma is buying today’s later-stage assets. Lower funding is currently going into early-stage assets, which are supposed to mature into tomorrow’s later-stage programs. These do not appear from nowhere. They begin as preclinical science funded at the seed and Series A stage a couple of years earlier. A venture market that has spent two years rotating away from early-stage biotech is not only creating cheap entry points today, but also structurally thinning the pipeline that pharma will need to acquire in 2030 and beyond. The demand side of this equation is fixed: patent losses are scheduled and cannot be resolved through internal R&D alone. The supply side is being constrained by a capital market in retreat from early-stage risk. When those forces intersect, the companies built quietly through this cycle will sit exactly where scarcity and motivated buyers meet.

Not all preclinical biotech is attractive. Much of it is not. The work is in finding the subset where biology is strong, translational design is credible, and the price reflects the market’s impatience rather than the company’s potential. The investors who do that work can sometimes access exceptional science before the market decides it is obvious. By the time it is obvious, the price looks very different.

The Risks Are Real

None of this makes preclinical biotech easy. Timelines are long. Biology fails. Translation breaks. Financing risk is material when syndicates are thin and follow-on capital is selective. Platform stories can be seductive and wrong.

The point is not that preclinical is safer than clinical-stage biotech. For a carefully selected subset, the price may be more favorable relative to the upside precisely because most investors are unwilling to shoulder the uncertainty today. This is about mispricing, not low risk.

Before Sentiment Catches Up

Markets do not stay this bifurcated forever. McKinsey has noted that “With rates easing, biotech valuations dipping, and a number of high-value patents expiring, dealmaking could pick up — but geopolitical risks make the outlook uncertain.”¹⁰ When sentiment broadens, the same companies dismissed as too early may suddenly look strategically scarce.

These windows close gradually. One deal gets done at a notable premium. A pharma buyer pays a price that makes the previous round look cheap. By the time the opportunity is obvious to everyone, the entry point has moved.

For founders: the market undervaluing your work today is not evidence that it lacks value. For LPs and co-investors: the opportunity may be exactly where the market is least comfortable: the early stage, before the data is in and the price has moved.

That is where we are still spending time at Alumni Ventures. Our focus on TechBio, biotech, and healthcare reflects a conviction that the most durable returns in this sector come from being early to the science, not just early to the consensus. 

We are actively investing in preclinical and early-stage companies where the scientific idea is strong, the team has translational credibility, and the price reflects the market’s impatience rather than the company’s long-term potential. Two examples from our most recent investments include General Control, which is advancing one-time gene “reprogramming” medicines designed to durably treat chronic metabolic disease without permanently editing DNA, with first applications in Obesity and Liver Disease. Another example is GT Bio, building the world’s most comprehensive in vivo drug delivery atlas to enable the creation of precise, scalable, and affordable medicine for patients.   

If you share our ideas and if this piece describes what you are building or would like to invest in, we should talk.

Example portfolio companies are shown for illustrative purposes only; not necessarily indicative of any AV fund or investor. Investments shown are not available to future investors, except potentially in the case of follow-on investments. Past performance does not guarantee future results.

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Sources:

1. PharmaVoice, “Big Pharma Navigating Patent Cliff, $300 Billion,” 2024.
2. Keytruda revenue and biosimilar timeline: BioPharma Dive
3. BCG, “Biopharma’s Patent Cliff Puts Costs Front and Center,” Feb 18, 2025
4. McKinsey & Company, “Pulse check: Key trends shaping biopharma dealmaking in 2025,” Jun 20, 2025
5. 2024 figure (98 rounds): BioSpace, “Biopharma Finishes 2024 Strong With ‘Robust’ VC,” Jan 9, 2025 — 2025 figure (80 rounds): J.P. Morgan, Biopharma Licensing & Venture Report Q4 2025, Feb 2026. WSJ reports 106 rounds in 2024, supporting the “nearly 180” combined figure.
6. Larka, “Biotech Venture Capital Report 2024.” 
7. Pfizer acquires Metsera for ~$10B: Pfizer Press Release — “The risks Pfizer faces with its $10 billion obesity drug bet,” Nov 10, 2025. 
8. PitchBook, “Q4 2025 Biopharma VC Trends,” Feb 13, 2026. 
9. Stylus Medicine ($85M): Business Wire, May 13, 2025. — Dispatch Bio ($216M): BioPharma Dive. — Lila Sciences ($200M): BioPharma Dive, Mar 10, 2025. — Xaira Therapeutics ($1B): Fierce Biotech, Apr 24, 2024.
10. McKinsey & Company, “Pulse check: Key trends shaping biopharma dealmaking in 2025,” Jun 20, 2025. (see also note 4)

This communication is from Alumni Ventures, a for-profit venture capital company that is not affiliated with or endorsed by any school. It is not personalized advice, and AV only provides advice to its client funds. This communication is neither an offer to sell, nor a solicitation of an offer to purchase, any security. Such offers are made only pursuant to the formal offering documents for the fund(s) concerned, and describe significant risks and other material information that should be carefully considered before investing. For additional information, please see here. Achievement of investment objectives, including any amount of investment return, cannot be guaranteed. Co-investors are shown for illustrative purposes only, do not reflect all organizations with which AV co-invests, and do not necessarily indicate future co-investors. Example portfolio companies shown are not available to future investors, except potentially in the case of follow-on investments. Venture capital investing involves substantial risk, including risk of loss of all capital invested. This communication includes forward-looking statements, generally consisting of any statement pertaining to any issue other than historical fact, including without limitation predictions, financial projections, the anticipated results of the execution of any plan or strategy, the expectation or belief of the speaker, or other events or circumstances to exist in the future. Forward-looking statements are not representations of actual fact, depend on certain assumptions that may not be realized, and are not guaranteed to occur. Any forward-looking statements included in this communication speak only as of the date of the communication. AV and its affiliates disclaim any obligation to update, amend, or alter such forward-looking statements, whether due to subsequent events, new information, or otherwise.