Healthcare venture capital has already blown away 2020 records, but does it have the juice to keep growing?
With the wind of the pandemic at its back, the biopharma industry saw a surging tide of fundraising in 2020 that has only exponentially grown this year. But with VC dollars flowing like never before, are there some cracks showing in biopharma’s gold-tinted façade?
In the first half of 2021, total healthcare venture spending in the US has already outstripped 2020’s record-breaking totals across biotech, healthtech and beyond, putting the industry on a funding pace that could be hard to match in coming years, according to a new report from Silicon Valley Bank released Wednesday.
For the US healthcare industry writ large — which includes biotech, healthtech, diagnostics and devices — venture capital was responsible for $21.9 billion in fundraising in the first half, well past the industry’s total of $16.8 billion in 2020.
The story is much the same when considering the number of deals and VC fundraising in both the US and Europe, where the healthcare sector in the first half nearly surpassed 2020 totals with $47.2 billion raised compared with $50 billion, respectively. Meanwhile, the total number of VC fundraising deals already reached 1,286 in H1 compared with 1,611 in all of 2020.
The industry’s Q2, riding tailwinds from the pandemic year, was a particularly strong period with 669 VC deals in the US and Europe, just narrowly beating out Q1’s 619 total deals. Q3 2020 previously held the record on that count with 465 deals.
Underscoring that torrent of financing was the VC industry’s turn toward Series A founds for biotechnology, which proved to be a particularly fruitful market as competition among crossover investors drives their interests earlier into the drug development process. Series A investments totaled $3.94 billion in the first half compared with $3.95 billion in all of 2020.
Series A investments in what SVB defined as “platforms” totaled 35 deals in H1, well on the way to overtaking 2020’s total of 45. But the valuations on those raises were far higher, with $2.2 billion raised in the first half compared with just $1.4 billion for 2020. Many of those investments have also moved away from single-indication biotechs with molecules in the clinic — a popular bet as recently as 2019 — to multi-target companies with their candidates in the preclinical stage or still in stealth.
Meanwhile, oncology — the big winner in terms of VC fundraising — saw 34 Series As in the first half of 2021 compared with 44 in 2020. In terms of dollar figures, those deals came out to $1.1 billion and $1.3 billion, respectively. For both platform and oncology plays, all fundraising round totals are on pace to pass last year’s total.
That growth in early fundraising has been led by a slate of new crossover investors jumping into the fold. Alexandria Ventures, for instance, dropped 12 Series A investments over the course of 2020 and H1 despite being a new entrant. Casdin Capital, OrbiMed and RA Capital followed the leader with 10, 10 and nine such deals, respectively.
SVB also highlighted what Endpoints News readers know well: The biotech IPO market has been red hot in terms of total offerings while a promising 2020 for M&A has slammed on the brakes. In H1 so far, there have been just seven M&A deals for private biotechs compared with 19 in 2020.
Despite the smaller deals, upfront cash in those seven pacts has actually been higher than last year at a median value of $370 million compared with $300 million in 2020. The majority of this year’s deals has also been for preclinical assets, historically a minority of private M&A deals signed.
The reason for biopharma’s move away from M&A are multifold, with a suddenly combative FTC and an industry looking to steer clear of sky-high valuations and high premiums on deals. AstraZeneca and Alexion’s $39 billion merger with rare disease drugmaker Alexion, which recently cleared its final hurdle for approval, could soon prove to be a dinosaur of a deal as regulatory hurdles accumulate.
Meanwhile, SVB tracked 50 IPOs so far on the year, well on pace to surpass 2020’s total of 84. But while public offerings have been up, pre-money valuations and proceeds have been down, according to SVB. The standard “pop” for post-IPO biotechs posted a meager 7% average jump — perhaps underscoring some waning interest as the pandemic winds down among generalist investors.
“It is possible that biopharma specialist public investors cannot keep up with the IPO pace, and generalists that helped keep IPOs frothy have diversified as the economy re-opened in 2021, leading to less attention and less of the post IPO pop we saw in recent years,” the firm said.