A lean first quarter for venture-backed developers

While venture investors keep the purse strings tight, they themselves continue to enjoy fundraising success.

Biopharma venture financings fell over each consecutive quarter last year, and that theme continued in the opening three months of 2023. The $3.3bn raised by private drug developers suggests that the sector could be heading back to 2017, when quarterly funding levels last dipped below $3bn.

There are reasons to hope that these numbers might not drop too much further, however. Biopharma venture firms had a strong open to the year in terms of the new funds they raised, according to the investment bank Torreya. Few expect a dramatic turnaround in the financing climate this year, particularly on the public markets, but private money is at least still showing interest in the sector.

SR One, for example, closed its second fund at $600m last month, beating a $500m target. Its chief executive, Simeon George, tells Evaluate Vantage that the prospects for new technologies like Crispr and gene therapy continue to be a strong draw for investors. Having a couple of successful portfolio companies helps with the fundraising process, he admits. 

Nimbus’s deal with Takeda, for example, was a “massive return for us”, SR One having been an investor in the small developer since 2011. It has been a long-term investor in Arcellx, one of the few successful 2022 IPO candidates, which went on to sign a huge deal with Gilead. SR One also backed Turning Point, which was bought by Bristol Myers Squibb last year for $4.1bn.

SR One was formerly GSK’s venture arm until the two separated in 2020. The pharma giant remains an anchor investor, albeit with no special rights over other limited partners, and its exposure has decreased to less than 10% in Fund II, George says.

In a further encouraging sign, it is not only venture firms with a track record raising funds this year. Cure Ventures raised its first fund, closing at $350m, today. True, its partners are not new to the sector, but this suggests that there are limited partners willing to inject new capital into biopharma – and not just to protect existing investments.

Despite all this, there are unfortunately more points of gloom than glimmers of hope in biopharma financing data right now. The chart above is based on financing news collected by Evaluate Pharma; the data concern only pure-play drug developers, with medtech and digital health groups excluded. 

With the IPO window barely open any wider than last year, and the equity markets leery of high-risk propositions, the picture for cash-hungry small developers is bleak.   

The current situation presents “an existential crisis for every startup. It's how do you survive over the next one, two, however many years,” SR One's George says.

Companies should be considering all tools to help cash last longer, including opening up previous financing rounds, raising capital through partnerships, or focusing on fewer programmes, he says. “The reality is, no round is worse than a down round.” 

The table below shows that, when the story is right, young developers are still amassing substantial sums of money. The Car-T player Cargo Therapeutics, which raised $200m, albeit from a very broad syndicate with three co-leads – Third Rock, RTW and Perceptive Xontogeny – is one example.

But investors and executives alike are under no illusions about how tough the coming months will be, and the daily press releases detailing layoffs and project curtailments confirm this to be true.

“We have to brace ourselves for the fact that things aren't going to dramatically turn back to where they were a year or two ago,” George says. “We’re all going to have to focus on the fundamentals of our businesses.”

Top five biopharma VC rounds of Q1 2023
Company Investment ($m) Financing round Description 
Cargo Therapeutics 200 Series A Car-T cell therapies
Arrivent Biopharma 155 Series B Developing phase 3 EGFR kinase inhibitor
Amolyt Pharma 138 Series C Rare endocrine and metabolic disorders
Hemab 135 Series B Rare bleeding and clotting disorders
Flare Therapeutics 123 Series B Targeted small molecules for cancer
Source: Evaluate Pharma.

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