The retrenchment begins for venture funding

The gloomy climate for biotech is now taking its toll on private companies too.

Until recently, venture-backed biotech companies had largely managed to shrug off the malaise that has been hurting the industry for some time. Now the inevitable has happened, with both the number of venture rounds and the amount raised taking a dive in the second quarter.

True, the numbers do not look so bad when compared against pre-2020 figures, the latest analysis of data compiled by Evaluate Pharma show. But, with the current downturn showing no sign of bottoming out, the question is how bad it might become for young private groups.

In hindsight, the signs of a downturn were already there in first-quarter figures that, on the surface, looked respectable. But the total sum deployed was propped up by a huge $3bn round for the anti-ageing specialist Altos, which is on the fringes of what can be classed as drug developer (Venture funding stays strong despite the gloom, April 6, 2022).

It is important to remember that this analysis concerns only companies involved in drug development. Sectors like medtech and digital health are excluded, as are manufacturing and services companies; groups in this latter category, with ostensibly better chances of generating cash flow than developers, are still raising large financing rounds.

Resilience, for example, which raised $625m in the second quarter but is not included under our definitions of a developer; the group offers cell and gene therapy manufacturing services to biotech companies. Analyses of biopharma venture funding that throw the net wider will capture these sorts of companies – our analysis, however, provides a snap shot of the sector’s highest-risk area.

The chart above shows that the incidence of mega-rounds of $100m+ dropped to pre-pandemic levels last quarter for this group of high-risk developers. It is no secret that valuations are being compressed in the private space, as well on the public markets, which will have contributed to this drop.

The closing of the IPO markets has also removed crossover rounds – large financings done ahead of a flotation – from this picture.

How bad have things become? Stat News recently painted a dire picture of private companies unable to go public and desperate for cash, and having to accept the reality of down rounds: raising money at a lower valuation than their previous one.  

Some venture capitalists are more optimistic. Bruce Booth of Atlas Venture struck a more upbeat tone in his recent blog, stressing that although the current financing market was “jittery” the private biotech space remained “awash” with capital.

This is certainly true – only recently, the US VC Arch Venture Partners closed a $3bn fund. And this money needs to be put to work.

But it seems almost inevitable that this cash will gravitate, where it can, to relatively safe havens within the biopharma space. The chart above suggests that those at the clinical coal face are already seeing the purse strings tightened, a situation that is unlikely to change any time soon.

Top five rounds of Q2 2022
Company Investment ($m) Financing round Description 
Kriya Therapeutics 270 Series C Gene therapies
Upstream Bio 200 Series A Inflammation
Frontera Therapeutics 160 Series B Gene therapies
Aspen Neuroscience 148 Series B Personalised cell therapies
Tessa Therapeutics 126 Series A Cancer immunotherapies
Source: Evaluate Pharma. 

This story has been updated to include Kriya Therapeutics.

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