Venture financing ticks up for biopharma

But, with an ever-growing proportion of the cash going to a select few, the gulf between the haves and the have-nots is widening.

Young drug developers raised the biggest pot of venture cash since early 2021 in the second quarter, suggesting that the big pullback in private financing seen last year might have stabilised. Digging deeper into the venture data reveals the caveats that come with such optimism, however.

Almost two thirds of the $5.3bn raised last quarter went towards $100m-plus rounds, the biggest proportion since at least 2018. Those operating outside “must have” therapy areas and technologies are still struggling to access funds. 

The focusing of venture capital on fewer bets is not a new trend, but it is becoming more pronounced. In 2019 35% of the year’s funding went into $100m+ rounds, a proportion that climbed every year to hit 54% in 2022. Over the first half of this year it stands at 59%.

The graph below suggests that venture financing has settled at pre-boom levels – with more than $9bn raised over the first half of the year there is plenty of money out there. The hope must be that as investors become less risk-averse the cash they disburse to smaller companies increases.

Based on data gathered by Evaluate Pharma, this analysis concerns venture investments raised only by drug developers; sectors like digital health, medtech or genomics are excluded.

This concentration of capital is also being felt by the venture firms themselves. Across all sectors commitments to venture funds dipped last year, with Pitchbook estimating that another drop is likely in 2023, to the lowest annual total since 2017.

However, established firms with a strong track record are not reporting any trouble in mustering cash. Forbion, one of Europe’s largest life science venture firms, for example, raised €1.4bn ($1.5bn) across two oversubscribed funds in April this year.

Speaking to Evaluate Vantage at the time, managing partner Sander Slootweg put Forbion’s success down to the right “hygiene factors”. These included a strong track record on exits and limiting losses, and raising sufficiently large funds into which big institutions, which are required to deploy minimum levels of capital, can invest.

The money wheels are not turning as freely as in recent years, however. The drop in equity markets has caused many institutional funds to be overallocated on private investments – the so-called denominator effect. This has prompted some asset managers to pause or pull back on their venture commitments in an attempt to rebalance their own funds.

“It's no secret that the markets are quite turbulent. We see a lot of pressure on our [limited partners], there's a contraction in the market and the denominator effect does come up,” Robbert van de Griendt, general partner at Forbion, said.

Smaller venture players are having a more difficult time raising cash for all or some of these reasons. “There is a bit of a bifurcation in the market,” Slootweg said. This helps explain why smaller financings are suffering. At the same time, the venture sector is “getting more selective” in where it places bets, Slootweg added.

“I think there is no lack of money out there. [Start-ups] just have to have an attractive proposition,” he said.

In the private biopharma world, in the boardrooms of developers and their investors, that money is increasingly being held by fewer hands. 

Top five biopharma VC rounds of Q2 2023
Company Investment ($m) Financing round Description 
ElevateBio $401m Series D Cell and gene therapies
Hasten Biopharmaceutic $315m Series A Chinese developer 
Renagade Therapeutics $300m Series A RNA medicines
ITM Isotopen Technologien München $280m Undisclosed Radiopharmaceuticals
Orbital Therapeutics $270m Series A RNA medicines
Source: Evaluate Pharma.

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