Venture cash gets even more concentrated

The latest venture capital numbers suggest that 2019 will see a healthy amount raised, but the falling number of rounds could be a worry.

In terms of venture cash, living up to last year was always going to be a hard task. The latest figures indicate that 2019 will fall well short of 2018, but the grand total brought in by young drug developers should still look healthy compared with the years before that.

However, this headline number masks a potentially worrying trend: the number of rounds continues to fall, and reached a five-year low in the third quarter of 2019. This concentration of more wealth into fewer hands looks like bad news for start-ups and, perhaps, the biopharma ecosystem as a whole.

This analysis includes only developers of human therapeutics, excluding sectors such as medtech or diagnostics. But it echoes a trend seen in medtech for some time: a widening gap between the haves and have-nots, which has led to a shrinking pool of M&A targets.

While some might argue that more selective venture funding could strengthen the biopharma talent pool by weeding out weaker players from the start, it is unclear whether this is indeed the case – or whether funnelling cash towards the hottest sectors means valid opportunities in less fashionable fields are missed.

A look at the biggest fundraisers in the third quarter neatly illustrates how one sector, oncology, is gobbling up a massive share of the cash: six of the top 10 rounds involved cancer companies.

The list was headed up by the German mRNA and cell therapy specialist Biontech, which brought in a whopping $325m in July; the group is preparing to float this week in an IPO that could raise the company a further $250m and give it $4.5bn valuation.

Top 10 VC rounds of Q3 2019
Company  Investment ($m)  Round  Location Specialism
Biontech 325 Series B Germany Oncology
D&D Pharmatech 137 Series B S Korea/US CNS/fibrosis
AM-Pharma 133 Series F Netherlands Kidney disease
Lepu Biotechnology 130 Series A China Oncology
Achilles Therapeutics 127 Series B UK Oncology
Recursion Pharmaceuticals 121 Series C US AI drug discovery
Nkarta Therapeutics 114 Series B US Oncology
Passage Bio 110 Series B US Rare CNS diseases
Kronos Bio 105 Series A US Oncology
IGM Biosciences 102 Series C US Oncology
Source: EvaluatePharma.

Another of the third quarter’s big VC winners, IGM Biosciences, has already managed to go public. The company has just taken its first candidate, an anti-CD20 bispecific antibody, into the clinic.

And investors are not avoiding high-risk, early-stage companies, at least not those in the right areas. The preclinical groups Nkarta Therapeutics and Kronos Bio are looking at natural killer cells and historically “undruggable” cancer targets respectively. And one of only two CNS players to make the top 10, the gene therapy specialist Passage Bio, is yet to enter the clinic.

While the current set-up benefits the few rather than the many, the headline figures in the third quarter could have been worse for start-ups: after two consecutive quarters of falling cash there had been fears that the slump might continue (Venture investing dips again for biopharma, July 11, 2019).

Instead, it looks like 2019 will follow the pattern – if the outlier of 2018 is excluded – of venture activity dipping mid-year and rising again in the latter half.

The bonanza seen last year was probably not sustainable. But, if the downward trend continues, groups in neglected areas could find it even harder to raise cash. It will be a while until the ramifications of this shift become clear.

Annual biopharma venture investments 
Date  Investment ($bn)  Financing count  Avg per financing ($m)  No. of rounds ≥$50m  No. of rounds ≥$100m 
9M 2019 10.2 278 38.3 84 26
2018 17.3 415 44.1 129 38
2017 12.1 442 29.9 72 16
2016 9.7 442 23.4 48 13
2015 11.0 514 22.5 56 13
Source: EvaluatePharma.

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