Venture financing still positive but big rounds less common

The trend for VCs to pile in to bigger, later rounds might just be weakening.

Venture financing

Venture backing of private biopharma companies looks to be at a crossroads as the first half of 2017 wraps up. While the dollar amounts and number of rounds is on a pace to slightly exceed 2016’s total, financiers seem to have pulled back from massive fundraisings that have been the hallmark of the previous two years.

It is hard to judge whether this reflects a simple regression to the mean, a lack of mature companies that would draw big rounds, or an increased interest in earlier-stage companies. What is clear, however, is that while biotech has come off the boil since the 2015 peak, the investment climate remains more favourable for developers of human therapeutics than it was pre-boom (see tables below).

Holding steady

At the mid-year point, venture financiers are on pace to match or exceed last year’s total of $8.8bn in backing and 390 rounds. But the average size per round has shown a small decline – to $22.9m from $24m in 2016.

This analysis excludes medtech and diagnostic companies.

Annual VC investments
Date  Investment ($bn)  Financing count  Avg per financing ($m)  No. of rounds ≥$50m  No. of rounds ≥$100m 
H1'17  4.50 209 22.9 24 3
2016 8.83 390 24.0 47 12
2015 10.72 472 23.6 56 13
2014 7.28 505 15.6 35 4
2013 5.11 447 12.7 13 3
2012 4.75 438 11.9 15 3
2011 4.35 413 11.7 11 3
2010 4.79 450 11.8 11 2
Source: EvaluatePharma.

The obvious explanation is a lack of rounds of $50m or more, which clocked in at just nine in the first six months, a pace that would see the full year fall well short of the 47 recorded in 2016. These were the sorts of massive rounds that sparked worries that venture capitalists were bypassing earlier-stage companies in need of smaller tranches of funding (Chasing ever bigger, ever fewer venture rounds, January 16, 2017).

One of the hallmarks of venture investing in recent years has been the migration to big rounds and larger syndicates, and greater selectivity in support for seed and early-stage companies. The first half numbers suggest that trend is weakening.

Taking the second quarter in isolation provides some conflicting evidence, however. The number of rounds, 90, is one of the lowest quarterly totals recorded since EP Vantage began tracking venture financing, although the total for the quarter, $2.2bn, looks relatively strong.

That latter point could be down to a single financing from perennial chart-topper Intarcia Therapeutics, which hoovered up another $475m in April. The company is as late-stage as they come, as an FDA decision on its GLP-1 eluting implant is due by September.

Top five VC rounds of the second quarter
Company  Investment ($m)  Round  Date 
Intarcia Therapeutics 475 Series I Apr
Rubius Therapeutics 120 Series A Jun
Repare Therapeutics 68 Series A Jun
Tianjin CanSino Biotechnology 65 Series Undisclosed Apr
Iterum Therapeutics 65 Series B May
Source: EvaluatePharma.

Without that fundraising and that of Rubius Therapeutics, the second quarter would have looked rather pedestrian. Rubius landed a $120m series A in June, led by Flagship Pioneering with support from undisclosed institutional investors, to advance red-blood-cell based treatments for rare diseases and cancer.

Three second-quarter rounds came in at the $60m range. Repare Therapeutics also got a big series A to aid its platform to exploit DNA damage repair defects in tumour cells; Tianjin Cansino Biologics raised $65m to support its vaccine R&D; and Iterum Therapeutics raised a similar amount to finance its work in treatments for antibiotic-resistant pathogens.

The clearest takeaway from venture funding in the first half of 2017 is that although it no longer can match the enthusiasm of 2015’s peak of the biotech boom, the flow of money remains strong. The emphasis on early-stage or late-stage groups and preference for big rounds may be down to individual investors’ strategies, making broad conclusions difficult to make.

To contact the writer of this story email Jonathan Gardner in Virginia at jonathang-us@epvantage.com or follow @ByJonGardner on Twitter

Note: Article edited to correct table figure (Oct 2017)

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