First-quarter venture investments barely register the pandemic – huge
cash reserves should protect funding for biotech start-ups this year.
Clinical trials are being mothballed across the biopharma industry,
and companies are delaying the launch of new products because of
Covid-19. But if the $1.46bn that
Arch Venture Partners has just raised
for two new funds is anything to go by there is still substantial
appetite for private financings, even at the very high-risk end of
biotech.
The fact that Arch was able to amass such a huge war chest reflects a
belief that biopharma will eventually return to some semblance of
normality; patients will still require new and innovative drugs.
Vantage‘s latest analysis of
EvaluatePharma
data also reflects venture’s seeming resilience to coronavirus, with
the amount invested over the opening months of the year and the volume
of deals showing very little retreat over previous quarters.
It should be noted that this analysis includes only companies
developing human therapeutics, providing a look at the highest-risk end
of biotech venture investing. Subsectors like Medtech and diagnostics
are excluded, as is digital health, an industry that has seen a huge
inflow of investment thanks to the Covid-19 pandemic.
If the current pace of investment is maintained for the rest of 2020
total funding could come in at around $13.2bn. While this is back down
to 2017 levels, it is widely agreed that 2018 was an outlier, and the
sums being raised are still very high, historically.
The volume of deals has stayed pretty constant for the past seven
quarters, suggesting that a “new normal” is emerging. It also looks like
mega-rounds remain very much a feature, as huge syndicates are formed
to fund companies as far along development paths as possible.
This has concentrated venture cash into ever fewer hands, and one
fallout of the pandemic could be to exacerbate this trend, with VCs
perhaps leaning towards safer plays in the coming months.
| Annual biopharma venture investments |
| |
Investment ($bn) |
Financing count |
Avg per financing ($m) |
No. of rounds ≥$50m |
No. of rounds ≥$100m |
| Q1 2020 |
3.28 |
101 |
33.47 |
25 |
11 |
| 2019 |
14.67 |
417 |
36.41 |
116 |
36 |
| 2018 |
17.89 |
481 |
39.06 |
130 |
38 |
| 2017 |
13.21 |
528 |
27.40 |
76 |
19 |
| 2016 |
10.44 |
493 |
22.51 |
52 |
15 |
Of course at this point in the year everything is speculative, given
that we have yet to see the full fallout from the pandemic. This will
continue to affect supply chains for much of biopharma, interrupt the
hiring plans of start-ups and almost certainly delay any non-Covid-19
related dealmaking.
Shielding the venture sector in the medium term is the fact that the
good times of 2018 and 2019 allowed huge funds to be raised that will
have to be deployed within defined timeframes. And, as the Arch
fundraising demonstrates, limited partners, who supply the capital for
funds, are still keen to allocate cash to this asset class.
But much depends on how long the disruption continues, something that is true for pretty much all sectors.
| Biggest biotech venture rounds of Q1 2020 |
| Company |
Amount raised ($m) |
Location |
Financing round |
| Immunocore |
130.0 |
United Kingdom |
Series B |
| Nurix |
120.0 |
USA |
Series D |
| Kallyope |
112.0 |
USA |
Series C |
| SutroVax |
110.0 |
USA |
Series D |
| Generation Bio |
110.0 |
USA |
Series C |
| Source: EvaluatePharma. |
In an usual turn-up for the books the biggest financing of the
quarter was led by a UK company, Immunocore. The troubled biotech has
long been
looking for money, and managed to secure $130m in a series B round, although the fact that this was a down round took some shine off.
While there were the usual suspects of oncology and gene therapy
companies among the five largest rounds, Kallyope with its focus on
small-molecule drugs targeting the gut showed that companies in
lower-profile therapy areas can rake in substantial amounts of cash.
The timing of Sutrovax’s series D round at the end of March might
have been coincidental, given the time it can take to put syndicates
together. But alongside the group’s primary focus on pneumococcal
infections, its cell-free protein synthesis vaccine platform, which
promises to circumvent some of the efficacy and scaling issues of
traditional vaccines, might have provided an additional attraction in
coronavirus times.
The first quarter did not raise any obvious alarm bells for the
financing of smaller companies. But it will be interesting to watch how
venture chooses to allocate its money in the coming months.
https://www.evaluate.com/vantage/articles/data-insights/venture-financing/biopharma-venture-investors-shrug-covid-19
