Six top biotech VCs take a look at the lat­est trends, and of­fer their thoughts on 2018

This year has been a rel­a­tive gush­er of VC dol­lars flow­ing in­to biotech com­pa­nies, with gi­ant “mega-deals” pro­pelling the in­dus­try’s record-set­ting year. Top VCs in the field say they’re cau­tious­ly op­ti­mistic that the trend will con­tin­ue next year.

The in­dus­try has cruised past its pre­vi­ous VC fund­ing record of $7.3 bil­lion, which was set back in 2015. This year saw biotechs raise $9.3 bil­lion in 471 deals, ac­cord­ing to Pitch­Book, mak­ing it the best year out of the last sev­en when it comes to vol­ume.

Deal count is run­ning a bit low­er than 2016 and 2015, which saw clos­er to 500 deals. But 2017 was a year of mega-deals, with the third quar­ter alone bring­ing in sev­er­al $100 mil­lion+ rounds. Most re­cent­ly there was ADC Ther­a­peu­tics’ $200 mil­lion round backed by As­traZeneca to push for­ward its next-gen an­ti­body-drug con­ju­gate. And ear­li­er in the quar­ter, Jeff Be­zos, Arch and oth­er in­vestors sunk $151 mil­lion in­to Uni­ty Biotech­nol­o­gy, which is look­ing to make new drugs that can se­lec­tive­ly sweep away senes­cent cells that clut­ter our bod­ies as we age.

All this ac­tiv­i­ty comes short­ly af­ter a some­what tur­bu­lent 2016 — a year when po­lit­i­cal and so­cial rhetoric and in­dus­try un­cer­tain­ty weighed on the sec­tor; when drug ap­provals fell sharply; and when biotech com­pa­nies faced a dwin­dling sup­ply of pub­lic mar­ket cap­i­tal to fund R&D.

Con­sid­er­ing the pip­ing hot IPO mar­ket so far this year and the record-set­ting VC fig­ures, it’s fair to say the in­dus­try took the un­cer­tain­ty rather well.

We asked 6 top ven­ture cap­i­tal­ists in biotech what they thought might hap­pen in 2018. Will ven­ture dol­lars go up, down, or stay flat next year? Why? Read their pre­dic­tions be­low:

Pre­dic­tions

Jer­el Davis

Jer­el Davis, man­ag­ing di­rec­tor at Ver­sant Ven­tures:

We ex­pect that 2018 will con­tin­ue to be a very strong ven­ture fund­ing en­vi­ron­ment with a con­tin­u­a­tion of fund­ing across stages, with large rounds, and in­creased com­mit­ments from new funds and cap­i­tal sources that are not the usu­al biotech sus­pects. This like­ly means ven­ture dol­lars will trend up­wards. Watch­ing pub­lic mar­ket ver­sus pri­vate val­u­a­tions through­out the year will be es­pe­cial­ly im­por­tant to en­sure the pri­vate space does not get ahead of it­self.

Wende Hut­ton

Wende Hut­ton, gen­er­al part­ner at Canaan Part­ners:

Ven­ture-backed fund­ing for bio­phar­ma deals in 2018 will be vig­or­ous and like­ly up from the high lev­els in 2017. An ir­re­sistible sup­ply of top-tier sci­ence and re­peat man­age­ment teams are bub­bling up every­where in the start­up ecosys­tem, which cre­ate at­trac­tive new op­por­tu­ni­ties for in­vest­ment. Ad­di­tion­al­ly, an un­par­al­leled lev­el of re­cent­ly-raised bio­phar­ma-fo­cused funds will need to be de­ployed in a ro­bust fash­ion dur­ing the next year. Canaan looks out and sees a great fund­ing en­vi­ron­ment for 2018.

Jay Lichter

Jay Lichter, man­ag­ing di­rec­tor at Aval­on Ven­tures:

I think that in­vest­ing will re­main ro­bust. There is a lot of cap­i­tal in the sys­tem with some big wins/ac­qui­si­tions and sev­er­al IPOs that pro­vid­ed liq­uid­i­ty for VCs and their in­vestors. I ex­pect the mar­kets to re­main “open” and hot while at times chop­py.

Ab­bie Cel­niker

Ab­bie Cel­niker, part­ner at Third Rock Ven­tures:

At Third Rock, we see the trend of healthy in­vest­ing con­tin­u­ing in 2018.  Con­di­tions in the macro en­vi­ron­ment place biotech in a strong po­si­tion for con­tin­ued val­ue cre­ation. In ad­di­tion, we see a tremen­dous amount of nov­el and ex­cit­ing sci­ence dri­ving both com­pa­ny cre­ation and the ad­vance­ment of new ther­a­pies mov­ing to­ward the clin­ic. Phar­ma and large biotech con­tin­ue to turn to small­er biotechs to en­hance their pipelines, and this sup­ports a very healthy ecosys­tem.

Bruce Booth

Bruce Booth, part­ner at At­las Ven­tures:

Bio­phar­ma ven­ture fund­ing in 2018 will like­ly mod­er­ate from the record-set­ting pace of 2017, but be in the ro­bust range of the last few years; in short, ac­cess to cap­i­tal won’t like­ly be a con­straint. Plen­ty of ven­ture and crossover firms have re­loaded with fresh funds, and large un­con­ven­tion­al gen­er­al­ist as­set man­agers re­main keen on in­vest­ing more in­to the promise of biotech, both pri­vate and pub­lic.

Noubar Afeyan

Noubar Afeyan, founder and CEO of Flag­ship Pi­o­neer­ing:

I ex­pect in­vest­ments in­to pri­vate biotech com­pa­nies to in­crease sig­nif­i­cant­ly year over year due to the strong pipeline of prod­uct-plat­form com­pa­nies emerg­ing from in­no­va­tion ef­forts in acad­e­mia, ven­ture firms and oth­er sources. Al­so ex­pect phar­ma de­pen­dence on ex­ter­nal in­no­va­tion as a source of their prod­uct sup­ply to con­tin­ue in­creas­ing as they find new ways of part­ner­ing with firms like Flag­ship to cre­ate long-term sup­ply agree­ments for break­through prod­ucts. Sources of cap­i­tal fo­cus­ing on life sci­ence in­vest­ing are al­so in­creas­ing con­sid­er­ably for late stage and pub­lic in­vest­ment.

 

Vlad Coric (Biohaven)

In an­oth­er dis­ap­point­ment for in­vestors, FDA slaps down Bio­haven’s re­vised ver­sion of an old ALS drug

Biohaven is at risk of making a habit of disappointing its investors. 

Late Friday the biotech $BHVN reported that the FDA had rejected its application for riluzole, an old drug that they had made over into a sublingual formulation that dissolves under the tongue. According to Biohaven, the FDA had a problem with the active ingredient used in a bioequivalence study back in 2017, which they got from the Canadian drugmaker Apotex.

Norbert Bischofberger. Kronos

Backed by some of the biggest names in biotech, Nor­bert Bischof­berg­er gets his megaround for plat­form tech out of MIT

A little over a year ago when I reported on Norbert Bischofberger’s jump from the CSO job at giant Gilead to a tiny upstart called Kronos, I noted that with his connections in biotech finance, that $18 million launch round he was starting off with could just as easily have been $100 million or more.

With his first anniversary now behind him, Bischofberger has that mega-round in the bank.

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Chas­ing Roche's ag­ing block­buster fran­chise, Am­gen/Al­ler­gan roll out Avastin, Her­ceptin knock­offs at dis­count

Let the long battle for biosimilars in the cancer space begin.

Amgen has launched its Avastin and Herceptin copycats — licensed from the predecessors of Allergan — almost two years after the FDA had stamped its approval on Mvasi (bevacizumab-awwb) and three months after the Kanjinti OK (trastuzumab-anns). While the biotech had been fielding biosimilars in Europe, this marks their first foray in the US — and the first oncology biosimilars in the country.

Seer adds ex-FDA chief Mark Mc­Clel­lan to the board; Her­cules Cap­i­tal makes it of­fi­cial for new CEO Scott Bluestein

→ On the same day it announced a $17.5 million Series C, life sciences and health data company Seer unveiled that it had lured former FDA commissioner and ex-CMS administrator Mark McClellan on to its board. “Mark’s deep understanding of the health care ecosystem and visionary insights on policy reform will be crucial in informing our thinking as we work to bring our liquid biopsy and life sciences products to market,” said Seer chief and founder Omid Farokhzad in a statement.

Daniel O'Day

No­var­tis hands off 3 pre­clin­i­cal pro­grams to the an­tivi­ral R&D mas­ters at Gilead

Gilead CEO Daniel O’Day’s new task hunting up a CSO for the company isn’t stopping the industry’s dominant antiviral player from doing pipeline deals.

The big biotech today snapped up 3 preclinical antiviral programs from pharma giant Novartis, with drugs promising to treat human rhinovirus, influenza and herpes viruses. We don’t know what the upfront is, but the back end has $291 million in milestones baked in.

Vas Narasimhan, AP Images

On a hot streak, No­var­tis ex­ecs run the odds on their two most im­por­tant PhI­II read­outs. Which is 0.01% more like­ly to suc­ceed?

Novartis CEO Vas Narasimhan is living in the sweet spot right now.

The numbers are running a bit better than expected, the pipeline — which he assembled as development chief — is performing and the stock popped more than 4% on Thursday as the executive team ran through their assessment of Q2 performance.

Year-to-date the stock is up 28%, so the investors will be beaming. Anyone looking for chinks in their armor — and there are plenty giving it a shot — right now focus on payer acceptance of their $2.1 million gene therapy Zolgensma, where it’s early days. And CAR-T continues to underperform, but Novartis doesn’t appear to be suffering from it.

So what could go wrong?

Actually, not much. But Tim Anderson at Wolfe pressed Narasimhan and his development chief John Tsai to pick which of two looming Phase III readouts with blockbuster implication had the better odds of success.

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Francesco De Rubertis

Medicxi is rolling out its biggest fund ever to back Eu­rope's top 'sci­en­tists with strange ideas'

Francesco De Rubertis built Medicxi to be the kind of biotech venture player he would have liked to have known back when he was a full time scientist.

“When I was a scientist 20 years ago I would have loved Medicxi,’ the co-founder tells me. It’s the kind of place run by and for investigators, what the Medicxi partner calls “scientists with strange ideas — a platform for the drug hunter and scientific entrepreneur. That’s what I wanted when I was a scientist.”

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Af­ter a decade, Vi­iV CSO John Pot­tage says it's time to step down — and he's hand­ing the job to long­time col­league Kim Smith

ViiV Healthcare has always been something unique in the global drug industry.

Owned by GlaxoSmithKline and Pfizer — with GSK in the lead as majority owner — it was created 10 years ago in a time of deep turmoil for the field as something independent of the pharma giants, but with access to lots of infrastructural support on demand. While R&D at the mother ship inside GSK was souring, a razor-focused ViiV provided a rare bright spot, challenging Gilead on a lucrative front in delivering new combinations that require fewer therapies with a more easily tolerated regimen.

They kept a massive number of people alive who would otherwise have been facing a death sentence. And they made money.

And throughout, John Pottage has been the chief scientific and chief medical officer.

Until now.

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H1 analy­sis: The high-stakes ta­ble in the biotech deals casi­no is pay­ing out some record-set­ting win­nings

For years the big trend among dealmakers at the major players has been centered on ratcheting down upfront payments in favor of bigger milestones. Better known as biobucks for some. But with the top 15 companies competing for the kind of “transformative” pacts that can whip up some excitement on Wall Street, with some big biotechs like Regeneron now weighing in as well, cash is king at the high stakes table.

We asked Chris Dokomajilar, the head of DealForma, to crunch the numbers for us, looking over the top 20 deals for the past decade and breaking it all down into the top alliances already created in 2019. Gilead has clearly tipped the scales in terms of the coin of the bio-realm, with its record-setting $5 billion upfront to tie up to Galapagos’ entire pipeline.

Dokomajilar notes:

We’re going to need a ‘three comma club’ for the deals with over $1 billion in total upfront cash and equity. The $100 million-plus club is getting crowded at 164 deals in the last decade with new deals being added towards the top of the chart. 2019 already has 14 deals with at least $100 million in upfront cash and equity for a total year-to-date of over $9 billion. That beats last year’s $8 billion and sets a record.

Add upfronts and equity payments and you get $11.5 billion for the year, just shy of last year’s record-setting $11.8 billion.

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