Is the venture feeding frenzy for young biopharma groups dissipating? Maybe: the $4.7bn raised over the past three months is the smallest quarterly sum this year.
In a typical year that figure could easily set a record, but of course 2020 has been far from normal. The pandemic has persuaded investors to throw huge amounts of money at a sector that was already doing pretty well on the financing front. As a result, more venture cash has been raised over the first nine months of 2020 than any other full year on record, bar one.
That year was 2018, when young drug developers banked $17.9bn in venture funding. This year’s tally is already at $15.7bn, so the final quarter would have to tank pretty spectacularly for 2020 to miss setting a new record.
There are few signs to suggest this might happen: the IPO market is going full throttle and equity markets remain strong. But the world is still embroiled in fighting a pandemic and arguably the biggest event of the year for the sector – the US presidential election – is looming. Major upheaval in the weeks ahead cannot be ruled out.
A dip in mega-rounds – those raising more than $100m – explains the retraction seen last quarter. Over the three months, 15 companies managed to snag more than this amount, with the largest raise achieved by Kronos Bio, at $155m.
In contrast, the second quarter contained five rounds that raised more than $200m, while the first quarter saw three companies tip over this threshold.
Still, the average amount raised in each financing this year is still tracking well above historical levels, and this is another metric that looks likely to see a new record.
This analysis only tracks companies involved in research-stage drug development, and excludes sectors including medtech, diagnostics and digital health, for example.
|On track for a record: venture financings stats|
|Investment ($bn)||Financing count||Avg per financing ($m)||No. of rounds ≥$50m||No. of rounds ≥$100m|
An important question is why the frequency of mega-rounds dipped last quarter. It could simply be matter of timing; it would only take a couple of large financings to close a few days into a different quarter to make a big difference.
Something else could be at play, however. Many of these big financings are so-called crossover rounds, designed to bring in big public market and specialist investors with deep pockets ahead of an IPO. So perhaps this foreshadows something of a retraction in biotech flotations in the coming months.
It is understandable why management teams might decide against listing over a period when US politics could easily make stock markets volatile. Indeed a rush to float, or raise money via any route, ahead of the US election could well help explain the bumper numbers seen in IPO and venture markets so far this year.
Another aspect to consider is the rise of Spacs, or special purpose acquisition companies. These offer private groups an alternative route to market, eliminating the need of a crossover round. Not many have persuaded biotech start-ups of the advantages just yet, but it is not implausible that they are fairly widely under consideration (More biotechs test the third way to market, September 30, 2020).
At the end of the day, the venture world looks as buoyant as many other segments of biopharma right now. There are reasons why the next quarter might see another slowdown, but even if this happens 2020 looks certain to go down as a record breaker.
|Biggest biotech venture rounds of Q3 2020|
|Company||Country||Investment ($m)||Financing round|
|Kronos Bio||USA||155.0||Series B (crossover)|
|Encoded Therapeutics||USA||135.0||Series D|
|Suzhou Connect Biopharmaceuticals||China||115.0||Series C|