VC funding for human therapeutics remains depressed

Analysis

The flow of venture capital into companies developing human therapeutics slowed to $4.3bn last year, making 2010 the leanest of the last five years for the highest-risk segment of the life sciences sector, new data from EvaluatePharmashows.

Reports revealed a bounceback of the venture capital industry in its entirety last year, from the doldrums of 2009; it seems these investors are taking longer to move back into novel drug development. The analysis below, which excludes medical technology or device sectors, supports trends seen on the public markets, which remain extremely nervous of companies without a revenue stream, or at least the prospect of one in the not too distant future.

Diverse group

Classifying “life science” companies is a challenge due to a diversity that encompasses novel therapeutic research, diagnostics, biotechnology, devices, medical instruments and more. Therefore statistics tracking this sector will naturally vary, depending on how broad or narrow the definition chosen.

For example a MoneyTree Report, compiled by PricewaterhouseCoopers and the National Venture Capital Association, found that venture capital flowing into biotechnology in the US climbed 3.4% in 2010, to $3.69bn. However as well as human therapeutics these figures include investments into animal and industrial biotech, as well as related equipment, and pharmaceuticals.

The EvaluatePharmauniverse encompasses only companies focused on human therapeutics, around the world. As such, this analysis provides a unique snapshot of the highest-risk end of the healthcare sector.

Year Total VC Investment ($bn) Financing deal count
2010 4.3 246
2009 4.7 292
2008 4.4 261
2007 5.6 306
2006 5.1 262
Total 24.0 1,367

What this points to is a sector struggling to rebuild investor enthusiasm, despite broader sector analyses from other sources pointing to a recovery. Aside from a jump in 2009, both investment totals and number of deals struck remains depressed.

This may be surprising given the encouraging signs of recovery in the IPO market last year. However even many of these later-stage companies had to significantly curtail their fundraising ambitions, and several remain way below their offer price, including Alimera Sciences, Pacific Biosciences and Zealand Pharma.

Big pots

Significant funding rounds this year by companies including Symphogen and Circassia, raising $137m and $98m respectively, show there are large sums money available, with the right story to tell (EP Vantage Interview - Circassia gets $100m injection for allergy trials, April 19, 2011).

The table below shows the largest venture capital rounds struck in the last five years, still within the realm of human therapeutics. It excludes start-up or company building funds raised by Clovis Oncology, Graceway Pharmaceuticals and Alvogen, of $145m, $200m and $200m respectively.

Less than four months into the year and 2011 already counts for two of the biggest individual deals in the last few years. This gives grounds for optimism.

However at the same time it remains true that the drug development world is facing huge challenges. Greater risk aversion is driving more intense regulatory scrutiny, making the path to market tougher and more costly to navigate, while the pressure on prices is mounting throughout the world. For venture capital firms there are lower-risk sectors to be found that require shorter investment periods.

All of which makes justifying R&D spend an ever harder argument to mount, and the human therapeutics area of life sciences is feeling these pressures most keenly.

Still, there remain enthusiastic backers of the sector and the demand for new, improved drugs will grow should less developed nations continue to grow wealthier. For small, private drug developers seeking venture capital, hopefully 2010 will turn out to be a blip.

Top 10 VC Financing Deals 2006 - 2011 (YTD)
Financing Date Company Country Financing Round Investment ($m) Lead investors
2011 Symphogen Denmark Series F 143  Novo; Essex Woodlands Health Ventures
2010 Pacific Biosciences USA Series F 109  Gen-Probe
2008 Pacific Biosciences USA Series E 100  Deerfield Management; Intel Capital; Morgan Stanley Investment Management; Redmile Group; T. Rowe Price
2010 Archimedes Pharma United Kingdom Series Undisclosed 100  Warburg Pincus; Novo
2006 Kalypsys USA Series C 100  Tavistock Life Sciences
2011 Circassia UK Series D 98  Imperial Innovations; Invesco Perpetual
2008 OncoMed Pharmaceuticals USA Series B 93  Nomura Phase4 Ventures
2006 Esprit Pharma USA Series B 91  Apax Partners; Domain Associates; Montagu Newhall Associates; New Enterprise Associates; OAK Investment Partners
2007 Zosano Pharma USA Series A 90  HBM Bioventures; New Enterprise Associates; Nomura Phase4 Ventures; Proquest Investments
2008 Ganymed Pharmaceuticals Germany Series D 86  ATS Beteiligungsverwaltung; Future Capital; MIG Verwaltungs

All data sourced to EvaluatePharma

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