Venture investors still love drug developers

Biopharma scores a $5bn quarter as another big year builds for venture financing.

The second quarter was always going to struggle to match the $10bn raised in private financing rounds in the first three months of the year. So, while $5bn looks like a substantial pullback, it is far from a real retrenchment.

The latest haul is largely in line with recent quarters – aside from the record-setting Q1 – although a big drop in the volume of deals might raise some eyebrows. But quarterly trends can be volatile, and it is clear that the financing climate for private developers remains incredibly strong, so few will find reason for much alarm in these numbers.

This analysis by Evaluate Vantage, of data collected by Evaluate Pharma, concerns pure-play drug developers only. Sectors like medtech and digital health are excluded, and the vast majority of the financings were raised by companies based in Europe and the US.

The drop in financings means that the average second-quarter round topped $50m, again largely in line with recent periods, at least since the latest venture boom kicked off in early 2020. That was triggered by the pandemic, which helped encourage a flood of new money into the drug development sector.

The ease with which venture firms are raising substantial new funds, even as Covid-19 shows signs of being brought under control in developed nations, suggests that the lure of life sciences remains strong. The IPO window is certainly still wide open for biopharma, and this is another major driver of a strong venture sector.

A downside of sorts is the continuing upward pressure on valuations, particularly in hugely competitive areas like oncology and immunology. An incredibly quiet quarter for M&A, detailed by Vantage yesterday, suggests that when preclinical companies can amass billion-dollar valuations buyers shy away from takeouts.

Deals are happening, of course, and licensing activity remains strong. Even with these sorts of transactions it is abundantly clear that this is a seller’s market, with up-front fees regularly setting new records.

While venture firms can quickly flip portfolio companies onto the public markets this slowdown in M&A might not matter too much. But it is not a trend investors – private or public – will want to see continue.

The other major worry right now concerns overinvestment, which can persuade companies to pursue higher-risk projects that are more likely to fail. The downstream fallout there would be down rounds or even company collapses. Neither of these is yet being seen at any volume.

For now, the steady flow of cash into the sector will be masking any such issues. When the money dries up the story will change, but for now there are few signs of that happening.

Biggest venture rounds of the second quarter 
Company Description  Sum raised ($m) Round
Adagio Therapeutics US-based; working on MAbs against coronaviruses, including SARS-CoV-2 336 Series C
Insilico Medicine Hong Kong-based; AI drug discovery 255 Series C
Umoja Biopharma US-based; cellular immunotherapies for cancer 210 Series B
Nikang Therapeutics US-based; small-molecule oncology player 200 Series C
Apollo Therapeutics UK-based; collaboration between three universities, focused on oncology, inflammation & rare diseases 145 Series undisclosed
Source: Evaluate Pharma. 

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