Chasing ever bigger, ever fewer venture rounds

Data Insights

The rich get richer. This is the lesson of biotech venture capital funding in 2016, where winning teams got ever-bigger prizes while the cash purse got smaller.

A remarkable fourth quarter saw three rounds breaking the $200m barrier, and included four of the 10 biggest of the year (see tables below). The big prize of 2016, of course, went to Moderna Therapeutics, which has been a master showman in exceeding the mythical $1bn mark before fully revealing itself to the world (JP Morgan – Moderna comes out of stealth mode, January 10, 2016). 

The worry for groups trying to raise their first round of investment is the continuing slide in the number of fund raisings. The fourth quarter of 2016 saw the fewest rounds, 62, of any three-month period since EP Vantage began tracking venture funding in 2008. This broke the previous low of 76 in the third quarter of 2016. The annual number, 319, is also the lowest recorded in this time period.

Big totals

It is not all bad news, however. The $8bn that came in in 2016 is second only to 2015 in terms of amount raised, suggesting that there is money to be had even if the trajectory has gone negative. The lesson here is that private biotechs need to have a more compelling story than ever to earn venture backing, and if they succeed, the rewards will be rich.

This thesis is confirmed by the $25m average raise, a record amount. And it is similar to what is being seen in the medtech world (Even a $100m series A cannot save the medtech venture climate, January 16, 2016).

Annual VC investments
Date Investment ($bn) Financing count Avg per financing ($m) No. of rounds ≥$50m No. of rounds ≥$100m
2016 8.0 319 25.0 43 11
2015 10.7 439 24.5 57 14
2014 7.2 492 14.7 35 4
2013 5.0 433 11.6 12 3
2012 4.8 437 11.0 16 2
2011 4.4 408 10.7 11 3
2010 5.0 452 11.0 13 3
2009 4.9 387 12.6 16 2
2008 4.9 364 13.4 14 1

It is also confirmed by the likes of Intarcia Therapeutics, which has accumulated $1.3bn in venture backing to take it all the way to submission of its drug-eluting implant ITCA 650 in diabetes. The year’s end saw it receive $206m in a fund raising that included the Bill & Melinda Gates Foundation, which wants to see if the group’s drug delivery technology can be used in HIV prophylaxis.

Although it was assumed that its fundraising acumen would lead to a crossover round and eventual public listing, Intarcia stayed stubbornly private through the height of the biotech boom.

Top 10 rounds of Q4 2016 
Company Investment ($m) Round Date
Innovent Biologics 260.0 Series D Nov
Bluerock Therapeutics 225.0 Series A Dec
Intarcia Therapeutics 206.0 Series undisclosed Dec
UNITY Biotechnology 116.0 Series B Oct
Kymab 100.0 Series C Nov
Biohaven Pharmaceutical Holding 80.0 Series undisclosed Nov
Goldfinch Bio  55.0 Series A Dec
Magenta Therapeutics 48.5 Series A Nov
Castle Creek Pharmaceuticals 48.0 Series undisclosed Oct
True North Therapeutics 45.0 Series D Oct
Top 10 rounds of 2016 
Company Investment ($m) Round Date
Moderna Therapeutics 451.0 Series undisclosed Aug
Innovent Biologics 260.0 Series D Nov
Bluerock Therapeutics 225.0 Series A Dec
Intarcia Therapeutics 206.0 Series undisclosed Dec
Intarcia Therapeutics 215.0 Series I Sep
Denali Therapeutics 130.0 Series B Aug
Unity Biotechnology 116.0 Series B Oct
Zai Lab 100.0 Series B Jan
Dalcor Pharmaceuticals 100.0 Series B Apr
Hengrui Therapeutics 100.0 Series undisclosed Jun

Early stage

At the other end of the pipeline has been Moderna, which managed to raise more than half of its incredible total before putting a single candidate into human testing. Now that the veil has been pulled back on its pipeline, and its curious focus on infectious disease, maybe the Massachusetts-based group will start signalling its desire to seek an IPO.

At the height of the biotech bubble, VC rounds of this scale would have been seen as a move towards IPO as crossover funds entered the frame. With IPO activity having fallen off 2015’s peak, the trade sale is confirmed as the preferred route for investor exit.

In addition to falling short of 2015 on total amount and number of rounds, 2016 did not manage to match on the number of $50m and $100m-plus rounds. Achieving these marks would have been a big task, especially with biotech having become a less popular sector; however, on all statistics besides financing count 2016 bettered every year that preceded 2015.

Given these trends, and their apparent amplification by year, the prospects cannot be bright for those cash-hungry early-stage developers working in less favoured therapy areas. In a scenario where the valuations of publicly traded biotechs continue to discourage M&A, it could be that big pharma seeks less expensive assets by enlarging its business-development efforts in private companies as they run short of funding options.

To contact the writers of this story email Jonathan Gardner or Edwin Elmhirst in London at news@epvantage.com or follow @ByJonGardner or @EPVantage on Twitter 

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