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Biotech & Health Innovation: The 2025 Reset Sets Up Selective Opportunities for 2026

Biotech & Health Innovation was reshaped by a tough financing year in 2025. This sixth year-ender installment examines how that reset is narrowing investor focus as the sector enters 2026.

By the end of 2025, biotech and health innovation investors were no longer debating whether the sector needed a reset. It had already happened. Capital was tighter. Financing windows were narrower. And the days of funding long-dated science on promise alone largely disappeared. What replaced it was a more disciplined market that demanded proof points, clearer endpoints, and realistic paths to value.

According to EY’s 2025 Biotech Beyond Borders Outlook, public biotech revenues continued to grow in 2024, rising about 6.8% to roughly USD $205 billion, underscoring that commercial execution remains solid for established players. 

Financing, however, told a very different story.

Total biotech funding fell nearly 10% year over year to about USD $73 billion, while follow-on and other financings dropped to just USD $19.9 billion, the lowest level since 2016. At the same time, early-stage venture capital stayed active but became more concentrated, with fewer deals absorbing larger checks as investors backed only their highest-conviction companies.

“2025 was when the market stopped rewarding potential alone in this sector. Investors wanted to see what actually works, how it gets paid for, and whether management can get there without constantly tapping the market,” said Ryan Iverson, Portfolio Manager at CEM Partners Fund.

Medtech and AI Quietly Outperformed

While biotech wrestled with funding constraints in 2025, medtech and clinically applied AI continued to execute. EY’s Pulse of the MedTech Industry 2025 reports that the sector delivered its seventh consecutive year of revenue growth, reaching roughly USD $584 billion, with leading companies tracking 6–7% growth despite tariff uncertainty and macro headwinds. 

Dealmaking stayed selective but constructive, generating about USD $20 billion across 36 transactions in the first half of the year. While total M&A spending remained below long-term averages, average deal size climbed to USD $497 million, underscoring investor preference for fewer, higher-quality assets. Venture capital investment rose 16%, with financing rounds and deal sizes holding well above five-year norms.

Medtech’s appeal was straightforward because devices and embedded software with clear clinical use cases and large patient pools were easier for investors to underwrite than early-stage drug programs.

Within that performance, AI moved from testing to everyday use. According to SVB’s Healthcare Investments & Exits Report 2025, capital is flowing toward AI tools that are built directly into how care is delivered, from medical imaging and surgical planning to hospital operations and staff scheduling, where the impact on costs and productivity can be measured.

2026: Fewer Stories, More Outcomes

Looking ahead, 2026 is shaping up to be a cautious, step-by-step year for this sector, not a boom year.

Deloitte’s 2026 Global Life Sciences Outlook points to three persistent forces shaping the sector: tighter payer or reimbursement scrutiny, the integration of AI across R&D and operations, and continued pressure to demonstrate real-world value and affordability.

Tighter Payer Scrutiny

Payers are taking a harder line on pricing and access, demanding clearer evidence that new therapies justify their cost. Approval alone no longer guarantees reimbursement. Coverage decisions increasingly hinge on budget impact, comparative effectiveness, and how a drug performs against existing alternatives, especially in high-cost areas like oncology and specialty care.

For investors, this means commercial risk sits earlier in the value chain. Launch timelines are longer, margins face pressure, and winners will be companies that design trials, pricing, and market-access strategies with payers in mind from the start.

AI Across R&D and Operations

AI is becoming a productivity engine rather than a science project. Deloitte flags its growing impact on drug discovery, trial design, manufacturing efficiency, and supply-chain planning. Used well, AI shortens development timelines, lowers failure rates, and improves operating leverage.

The gap is execution. Many firms talk AI, but few have the data systems, governance, or workflows to scale it. From an investment lens, durable value will accrue to companies that turn AI into repeatable cost savings and faster cycle times, not those stuck running pilot programs.

Real-World Value and Affordability

The market is shifting from trial success to real-world performance. Payers and regulators want proof that therapies deliver measurable outcomes once deployed, and that pricing aligns with system-wide value, not headline innovation.

For investors, pricing power increasingly depends on evidence, not novelty. Companies that can link outcomes to economics through real-world data, value-based contracts, or better patient access are more likely to sustain revenue and defend margins as healthcare cost pressures intensify.

Additional analysis from West Monroe Partners points to a narrowing field of winners. As pricing pressure intensifies in 2026, advantage will concentrate with therapies and devices that can show clear clinical separation and measurable economic impact, rather than marginal improvements layered onto already crowded markets.

“2026 isn’t about betting on everything again. It’s about backing fewer companies that can show real clinical benefit, real economic value, and a realistic path to commercialization without stressing the balance sheet,” said Iverson. 

The three companies featured below, which earned Top Pick and Outstanding Performer recognition at this year’s CEM Investor Breakout Exchange, reflect that same discipline. Each offers a different mix of execution, capital efficiency, and defensible value.

Eupraxia Pharmaceuticals Inc.

Eupraxia (TSX: EPRX) uses its DiffuSphere delivery technology to turn well-understood drugs into long-acting, tissue-targeted therapies.

Its lead program, EP-104GI, targets eosinophilic esophagitis. Phase 1b/2a results released in 2025 showed substantial reductions in inflammation and symptoms lasting up to nine months following a single injection.

That durability matters when compared with biologics such as Sanofi’s Dupixent, which requires repeated dosing and carries annual costs exceeding USD $100,000 per patient.

“What stands out with Eupraxia is that they’re not swinging for impossible science. They’re taking drugs doctors already trust and making them work longer and more precisely. That resonates in this market," said Iverson.

With an extended cash runway following its 2025 financing, Eupraxia aligns well with the market’s 2026 preference for clinical momentum without near-term financing pressure.

NervGen Pharma Corp.

NervGen (TSX-V: NGEN) is working on one of medicine’s most difficult problems, restoring function after spinal cord injury. Its drug candidate NVG-291 targets pathways that stop nerves from repairing themselves.

According to the National Spinal Cord Injury Statistical Center, approximately 18,000 new SCI cases occur annually in the US, with lifetime care costs measured in the tens of billions of dollars.

Clinical updates in 2025 showed functional and quality-of-life improvements supported by neurophysiological data. The program has also received FDA Fast Track designation and orphan status in Europe, which provides regulatory support and years of market exclusivity if approved.

“NervGen is not a conservative investment. But if this works, it changes lives in a way very few therapies ever do. For some investors, that’s exactly where you want exposure," said Iverson.

Ocumetics Technology Corp.

Ocumetics (TSX-V: OTC) targets cataracts, a condition affecting nearly everyone who lives long enough.

Data from global ophthalmology associations estimate more than 30 million cataract surgeries are performed worldwide each year, supporting a multi-billion-dollar intraocular lens market.

In 2025, Ocumetics advanced preparations for first-in-human trials of its accommodating intraocular lens, designed to restore natural-like vision across distances.

“Cataracts aren’t discretionary. Everyone either needs treatment or helps someone who does. Ocumetics is trying to upgrade a guaranteed procedure, which is exactly the kind of medtech story investors like," said Iverson.

Investor Takeaway

The Biotech and Health Innovation sector heads into 2026 with tighter capital and a sharper focus on demonstrable outcomes than it has seen in years.

Eupraxia, NervGen, and Ocumetics show three different ways that plays out, from improving proven drugs, to tackling unmet neurological disease, to upgrading medical devices in large, recurring markets.

“We’re not looking for the loudest stories anymore. We’re looking for the ones that can still be standing in two or three years with data, cash, and a real business.”

That mindset is shaping how this sector wraps up 2025 and where capital is likely to flow as 2026 unfolds.

Next Week in the Investor Breakout Newsletter…

We examine the AI, Cybersecurity, and Digital Assets sector where security, infrastructure and adoption are driving value, heading into 2026.

Warm Regards and Happy Investing,
Fabian Dawson

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