Biopharma’s venture year ends with another dip

Venture capital investment is back to 2019 levels. This much is apparent from the latest cut of the data, which shows the smallest quarter for drug developers for three years in the final three months of 2022.

Investors insist that venture funds remain well stocked, which is true for now. But the closing of the IPO window and a wider shift in risk appetite is forcing firms to circle the wagons and protect existing portfolio companies. Until these factors change, investments are unlikely to tick higher.

The big question is how low these quarterly numbers might fall. 2021 was an outlier, and saw levels of cash deployment that could never be sustained; despite recent retrenchment investment levels remain historically very strong. Venture firms report healthy interest in life sciences from their own investors – but a protracted global downturn will be felt eventually.

For now, the annual numbers show that 2022 was still a strong year. It is worth remembering, however, that the $3bn raised by the anti-aging researcher Altos Labs gave the top line a big boost. Remove that deal, which would be an outlier in any year, and the average round size drops to $51m.

This analysis concerns venture financings of pure-play developers only; sectors like medtech and digital health are excluded. 

The number of large rounds is falling largely as a result of the exit of crossover investors, who supported the large, pre-IPO rounds that have vanished. The total financing count also dropped substantially last year, in another sign of venture firms pulling the purse strings tighter.

The quarterly numbers below illustrate this increasingly prudent stance, with the volume of financings dropping quarter on quarter. Capital is being concentrated into ever fewer bets. Few will rue the end of more profligate times, but concern about missed opportunities must be growing.