When Science Advances but Funding Doesn’t: Restructuring and Special Situations M&A in Pharmaceuticals and Biotechnology

By 2024–2025, distress across pharmaceuticals and biotechnology has become increasingly disconnected from scientific validity. Clinical data quality remains strong across many programs, regulatory pathways are well understood, and strategic demand for differentiated assets persists. Yet a growing number of companies, particularly single-asset biotechs, specialty pharma platforms, and sponsor-backed roll-ups, are entering special situations as capital duration assumptions collide with higher interest rates, slower public market receptivity, and rising development and manufacturing costs.

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For boards and creditors, the tension is familiar but sharper than in prior cycles. The science may be viable, but the capital often cannot last long enough to prove it. In this environment, restructuring is no longer a bridge to the next financing round. It has become the mechanism through which ownership of clinically relevant science transfers to balance sheets capable of carrying regulatory, development, and timing risk through inflection.

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Special situations underwriting in life sciences now begins at the asset level rather than the enterprise level. Buyers and creditors do not underwrite pipelines as collections of optionality. They underwrite probability-weighted milestones against funding gaps. Current underwriting focuses on stage of development and proximity to value-inflecting events, regulatory risk profiles and precedent comparables, burn rates relative to milestone timing, manufacturing readiness and CMC exposure, and partnering optionality together with change-of-control constraints. What no longer clears investment committees is the assumption that capital markets will reopen in time to fund the next phase. In 2024–2025, capital scarcity is treated as a base case, and transactions are priced around who can fund assets through the next inflection without dilution-driven collapse.

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The core value logic in life sciences special situations is not breakthrough potential. It is funding continuity. Value is preserved by transferring assets to owners with longer capital duration, narrowing focus to lead programs with near-term catalysts, abandoning or licensing non-core indications early, and resetting governance to prioritize capital preservation over portfolio breadth. A fragile assumption frequently exposed is scientific optionality. Boards often resist pruning pipelines to preserve ambition, but an unfunded option has no economic value. Value accrues to stakeholders who accept that discipline early.

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Execution failures in restructuring-led life sciences transactions tend to follow consistent patterns. Clinical delays extend funding gaps beyond available capital. Assumed follow-on financings such as PIPEs or crossover rounds fail to materialize under stressed market conditions. Intellectual property fragmentation through licensing and collaboration agreements impedes clean transfers of control. Enterprise-level restructurings stall when there are no decisive calls on which programs deserve survival capital. In most failed cases, the science remained promising while the capital runway did not.

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Capital markets conditions now decisively shape outcomes. Public biotech valuations remain compressed, IPO windows are narrow, and crossover capital is highly selective. Venture funding concentrates on later-stage assets with visible paths to approval, while private credit is largely unavailable absent royalty-backed or contracted cash flows. As a result, new capital prices as bridge-to-control rather than bridge-to-data, valuations reset around downside protection rather than upside scenarios, and minority financings increasingly embed step-in or take-out rights. From a capital markets advisory perspective, restructurings that do not culminate in an ownership model capable of funding development through inflection fail regardless of scientific merit.

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Transaction structures have evolved accordingly. Special situations M&A in pharmaceuticals and biotechnology increasingly relies on asset-centric solutions. These include program carve-outs acquired by strategic or royalty-backed buyers, reverse mergers used to recapitalize viable pipelines, debt-for-equity or royalty financings tied to specific milestones, and orderly wind-downs paired with IP sales when funding continuity cannot be restored. These structures deliberately trade independence for survivability, often the only rational exchange once access to capital collapses.

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Boards and investors frequently misjudge life sciences distress by equating scientific promise with financial resilience. Capital markets impose discipline long before data readouts resolve uncertainty. Common errors include assuming one more trial de-risks financing, delaying asset prioritization to avoid internal conflict, and treating restructuring as temporary rather than decisive. More disciplined boards focus on identifying which assets can realistically be funded to value and which owners are capable of doing so.

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In pharmaceuticals and biotechnology, restructuring is not a pause before M&A. It is the transaction through which science finds durable ownership. The assets that survive are those transferred early to capital providers with the patience and balance sheet capacity to fund uncertainty through regulatory and clinical milestones. For boards and investors navigating special situations in 2024–2025, the strategic question is not whether the science works. It is whether the capital structure allows that science to exist long enough, and cleanly enough, to reach a value-defining moment before funding scarcity dictates the outcome.