Wondering whether the venture financing boom is petering out? The answer seems to be an unequivocal no: private drug developers have raised more in the first nine months of this year than across the whole of 2017.
True, the third quarter of 2018 dipped slightly, with the total sum raised falling below the previous two quarters. But the amount of cash being thrown around at the moment remains historically impressive, and few will be fretting about any serious retrenchment.
Once again, the quarter was boosted by a series of huge rounds – Vantage counts nine companies that raised more than $100m in the third quarter. The phenomenon of “shareholder recruitment” – the formation of broad syndicates capable of amassing huge amounts of money for individual start-ups – is showing no sign of going out of fashion.
Venture financiers must be convinced that this strategy will improve returns over the longer term, even though the knock-on effect is fewer shots on goal. Only 83 start-ups received backing last quarter, the lowest number for at least five years.
A look at the annual tally of mega rounds illustrates how this trend has strengthened: 31 companies have raised more than $100m in a single round so far this year, double that of 2017.
The biggest round of the third quarter was raised by Samumed, although this financing could arguably have been excluded as not all the cash came from venture firms. The regenerative medicine company has apparently convinced a wide range of investors that its work on the WNT signalling pathway will bear fruit; Samumed boasted of a $12bn valuation at its last fund-raising.
|Annual VC investments|
|Date||Investment ($bn)||Financing count||Avg per financing ($m)||No. of rounds ≥$50m||No. of rounds ≥$100m|
Still, the huge rounds dominating the sector these days will rarely be funded exclusively by traditional venture capital firms. Gossamer Bio, like Samumed, has a sovereign wealth fund on its shareholder register, while private equity firms, family offices and high net worth individuals can also be found supporting young biotech firms.
This analysis only looks at companies developing human therapeutics, and excludes medtech or diagnostic companies, for example.
Advances with cutting-edge techniques like CAR-T and gene therapy has encouraged non-specialist investors to the sector, many of which have substantially deeper pockets that a traditional VC. Meanwhile, significant demand for new issues from public investors is another factor facilitating these huge rounds; for many of these companies an IPO will be on the horizon.
As such, any shift in the receptiveness of the public markets to these young businesses is probably one of the biggest risks to the private financing world. But, as things stand, there is nothing obvious on the horizon that might substantially shift good sentiment around the sector, though many investors are getting increasingly nervous about an escalating US-China trade war.
Concerns about overblown valuations are persisting, particularly in certain therapy areas. It is no coincidence that the biggest financings are being closed by companies active in immunology and oncology, and rare disease research.
The quiet M&A scene suggests that big pharma and biotech considers the sector expensive. The long game for most venture firms is that their portfolio companies eventually get bought, and presumably this has not changed even in the boom years. These traditional investors will have to hope that the recent flood of capital into the biotech sector is not making such an outcome less likely.
|Top 10 rounds of Q3 2018|
|Samumed||438||Series A||US (California)||August|
|Gossamer Bio||230||Series B||US (California)||July|
|Ascentage Pharma Group||150||Series C||China||July|
|Orchard Therapeutics||150||Series C||UK||August|
|Curon Biopharma||150||Series A||China||August|
|Aspyrian Therapeutics||150||Series C||US (California)||August|
|Alector||133||Series E||US (California)||July|
|Atreca||125||Series C||US (California)||September|
|TOT Biopharm||102||Series B||China||August|
|4D Molecular Therapeutics||90||Series B||US (California)||September|