Biopharma’s venture year ends with another dip

Last year saw plenty of cash deployed, but with sums shrinking each quarter the stage is set for further retrenchment.

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.

Annual biopharma venture investments
Year Investment ($bn)  Financing count  Avg per financing ($m)  No of rounds ≥$50m  No of rounds ≥$100m 
2022 21.7 381 58.9 149 65
2021 28.5 514 55.6 216 93
2020 22.6 543 42.4 173 63
2019 15.7 483 33.6 125 37
2018 18.2 548 34.8 127 36
Source: Evaluate Pharma.

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. 

2022's biggest biotech venture rounds
Company Country Investment ($m) Financing round
Altos Labs US 3,000 Undisclosed
Areteia Therapeutics US 350 Series A
Acelyrin US 300 Series C
Emalex Biosciences US 250 Series D
Kallyope US 236 Series D
Source: Evaluate Pharma.

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.

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