A sell-side analyst tells a small or mid-cap healthcare company they are interested. The science is compelling, the data look promising, and management is accessible. Then nothing happens. The initiation report never comes.
The cause is usually economics, and understanding this changes how a company approaches the path to biotech analyst coverage.
The cost of initiating
Writing an initiation report on a healthcare company is one of the most resource-intensive things a sell-side analyst does. A thorough initiation takes four to eight weeks of dedicated work. The analyst needs to understand the science, build a financial model, interview management, speak to key opinion leaders, assess the competitive landscape, and produce a report that institutional clients will find useful.
A small cap with no coverage offers high informational value. The return to the analyst’s firm is limited by a simple problem: the institutional clients who pay for research have little appetite for small, illiquid names. A position size that matters to a large fund does not work in a stock with a $300 million market cap and thin daily volume.
So, the economics of sell-side research push analysts toward the companies that need them least.
The complexity problem
Healthcare raises the cost of initiation further. A biotech initiation requires the analyst to understand mechanism of action, clinical trial design, regulatory pathways, reimbursement dynamics, and competitive positioning in a landscape that can shift overnight with a single data readout. Pipeline probability of technical and regulatory success (PTRS) assumptions demand scientific and commercial judgment that takes years to develop.
Summit Therapeutics shows how quickly things move. Its ivonescimab tops Evaluate’s World Preview ranking of the most valuable pipeline projects, with an NPV above $25 billion. An interim analysis miss in its Harmoni-3 trial in May 2026 still sent the shares tumbling, although the significance threshold was high.
This complexity creates real value when an analyst gets it right. A specialist with deep knowledge of an oncology platform or a novel therapeutic modality offers insight that generalist investors cannot replicate, and the upfront investment to reach that point is substantially higher than in most sectors, which raises the bar for initiating.
Independent research firms have moved into some of the space bulge-bracket banks have vacated, and their work is often excellent. They cover the gap only at the margins.
Analyst capacity and investment banking economics
Sell-side analyst capacity has declined for years while the universe of listed companies has grown. Across the 12 largest investment banks, analyst headcount fell from around 4,400 in 2012 to approximately 3,100 by 2020. In Europe, MiFID II’s unbundling of research payments accelerated the trend: 334 companies lost coverage entirely, and European brokerage analyst headcount fell by more than 11%.
Fewer analysts, more companies. Something has to give – and that thing is coverage.
Investment banking revenue adds a further factor. For analysts at full-service banks, coverage creates a relationship that can generate equity capital markets activity, advisory mandates, and M&A fees down the line.
A company that profiles as a plausible M&A candidate, or one likely to return to the equity markets for more capital, is more attractive to cover from a revenue standpoint. A company that does not fit that profile is less likely to make a coverage list at a bulge-bracket firm, regardless of the quality of its science or the interest of its clinical programs.
Deal flow demonstrates this quite clearly. Evaluate data show 35 biopharma M&A deals worth $35.4bn in Q3 2026, almost 19% above the quarterly average since 2021, and Lilly alone had announced 13 acquisitions by the end of Q3. These economics explain why coverage decisions can seem disconnected from the quality of the company being evaluated.
What does this mean in practice?
These structural forces may be frustrating, but they are real, and they are significant, but companies can still gain biotech analyst coverage in a difficult environment. The next piece in this series looks at what that takes, and at the steps within a company’s control.
This is the second piece in our series on the healthcare coverage gap – find the first piece here. Next: what healthcare companies can do to improve their chances of winning biotech analyst coverage.
