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.

 

5AM Ven­tures: Fu­el­ing the Next Gen­er­a­tion of In­no­va­tors

By RBC Capital Markets
With Andy Schwab, Co-Founder and Managing Partner at 5AM Ventures

Key Points

Prescription Digital Therapeutics, cell therapy technologies, and in silico medicines will be a vital part of future treatment modalities.
Unlocking the potential of the microbiome could be the missing link to better disease diagnosis.
Growing links between academia, industry, and venture capital are spinning out more innovative biotech companies.
Biotech is now seen by investors as a growth space as well as a safe haven, fuelling the recent IPO boom.

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