It is a good time to be a venture-backed company in the trendy areas of immunology and oncology. With a mid- or late-stage clinical project, or a partnership with one of the leaders in this space, a group has a good shot at landing one of the huge rounds that have emerged as part of the furious interest in biotech investment.
The flip side of this coin has been a continuation of the trend toward fewer rounds, as revealed in an analysis of third quarter venture capital spending (see tables below). Woe betide a respiratory company like Theron Pharmaceuticals, which was seemingly lucky to reap a $409,000 series A round to back its phase II asthma medication.
Venture capitalists missed beating the best quarterly total since at least 2007 in the July-September period by just $300m. The $2.15bn raised was instead second best, and marked the third straight quarter of totals in excess of $2bn; only the first quarter of 2007 and the second and fourth quarter of 2014 have neared that benchmark. By contrast, during the market crash and the patent cliff, some quarters could not even breach $1bn in venture funding.
The first and third quarters of 2015 have been helped along by some gigantic individual rounds. The point of reference by which all others will be measured is Moderna Therapeutics’ huge $450m raise in January, but Immunocore’s $320m round should not be sneezed at.
Moreover, the third quarter’s tally of three $100m-plus rounds is one more than the first quarter’s, showing that by just about every measure except for total raised Q3 was every bit the equal of Q1.
|Top 10 rounds of Q3 2015|
|Immunocore||320.0||Series Undisclosed||Jul 2015|
|Editas Medicine||120.0||Series B||Aug 2015|
|NantWorks*||100.0||Series C||Sep 2015|
|Turing Pharmaceuticals||90.0||Series A||Aug 2015|
|Merus||80.5||Series C||Aug 2015|
|Syndax Pharmaceuticals||80.0||Series C||Aug 2015|
|ADC Therapeutics||80.0||Series B||Sep 2015|
|Deciphera Pharmaceuticals||75.0||Series B||Sep 2015|
|Ovid Therapeutics||75.0||Series B||Aug 2015|
|Intellia Therapeutics||70.0||Series B||Sep 2015|
On the way to records
With the first and third quarters having exceeded all others since before the stock market crash, 2015 is well on its way to beating last year’s record total, standing just $400m short of that mark at September 30. It would take an unprecedented slowdown to fail to exceed $7bn – given the worst venture investment quarter since the crash was $660mat the beginning of 2013 and the worst Q4, during the dark days of 2008, was $910m, this is unlikely.
|Annual VC investments|
|Date||Investment ($bn)||Financing count||Average per financing ($m)||No. of rounds ≥ $50m|
Another record also looks likely to fall. At nine month the $23.9m per-round averages in 2015 look to be well above any other year at – helped along by two rounds worth nearly $800m – and Q3 2015 has beaten all others into the ground at $31.6m. The 37 rounds of $50m or more have already exceeded 2014’s total.
However, the converse of these high average rounds is the relatively low total numbers. Just 68 companies managed to attract venture money in Q3 – a huge fall from the 108 in Q2, the 113 of Q3 2014 and the post-2007 quarterly average of 101– and the nine-month run rate would put it around 2008 annual nadir. This is not necessarily a good indicator of financial health for some biotechs struggling to attract the attention of private investors.
|Financing Date||Average investment ($m)|
As with publicly traded companies, it is oncology that is taking the lion’s share of the venture dollars. Of the top 10 rounds in Q3, just Turing Pharmaceuticals and Ovid Therapeutics work outside this space. Although, time will tell how willing investors might be to participate in a series B for Turing.
The explosion in biotech investment has been as good for many venture backed companies as it has been for their publicly traded counterparts. However, the inequalities have been just as noticeable. As long as investors see the promise of quicker exits in oncology, closely held companies in respiratory disease and mental health will find themselves struggling to be heard.