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Reviewing 2018: Looking back at a record-breaking year for biotech funding

3rd December 2018

Looking back at 2018, it has been a year where private rounds of funding have dominated headlines in the sector. 2018 has been a record-breaking year for private investment in biotech. $13.5bn in venture capital poured into the sector in the first 10 months, easily beating the previous full year record of $11bn in 2017 (Figure 1). The growing investment in the sector has been mirrored to an extent in venture capital (VC) fundraising, with $11.3bn raised in 2018 to date vs a total of $14.5bn in 2017 (Figure 2).

Figure 1 Total VC investment in biotechnology

Source: PitchBook (31st October 2018)

Figure 2 Total VC fundraising for biotech

Source: PitchBook (31st October 2018)

Interestingly, this investment has been increasingly concentrated in large, established funds with a track record of investing in biotech. In addition, another interesting feature of these investments in the past year is that the funds have been deployed across fewer opportunities, reflective of new dynamics in the sector.

Biotech has long been a “winner takes all” space, where a handful of successful exits provide the lion’s share of returns to VCs, and it looks like investor sentiment appears to be shifting even more in this direction. Investors are writing bigger cheques while investing in fewer companies, a dynamic driven by the need to deploy larger and larger funds while maintaining discipline when evaluating opportunities and management teams. The result is that VCs are generally looking to take larger positions in fewer higher quality companies, suggesting greater confidence that they are able to pick the winners and that their concentrated backing of a few select biotechs will decrease their likelihood of failure.

John Cassidy, Investment Associate - Arix

The impact of positive news flow from the sector, both in terms of successful biotech exits via M&A (Table 1), as well as important scientific and clinical achievements, continue to galvanise interest in the sector from specialists and generalists alike. As a result, there has been an excess of funding available for quality opportunities, with VCs having to try harder to court attractive biotechs and be willing to accept higher valuations or risk losing out to other investors. Although the above has been true in the US for some time, it is also becoming the norm in Europe as specialist VCs continue to raise larger funds and invest alongside generalist and foreign investors from both the US and China.

For most innovative therapies, the US represents the largest and most profitable market and there is concern that recent anti-pharma sentiment in the US could lead to structural changes that reduce the financial opportunity for novel therapies. The sense is that the impact on large pharma could be significant, however this is also balanced with the view that “true innovation” will continue to be paid for (e.g. disease modifying first / best in class approaches). As this is the bread and butter of biotech, there is hope that this innovation will continue to be valued both by healthcare payers, but also by the large pharma who look to biotech as a source of external innovation, suggesting that continued investment in this space is warranted.

Table 1: Biotech M&A transactions ≥$750m (2018).
Source: PitchBook (31st October 2018)

Company

Acquirer

Therapeutic focus / Technology

Total deal size

Date (2018)

Bioverativ

Sanofi

Haemophilia / Recombinant factors

$11,600m

8th March

Juno Tx

Celgene

Oncology / CAR-T cell therapy

$10,000m

6th March

AveXis

Novartis

Rare disease (SMA*) / In vivo Gene Therapy

$8,700m

5th May

Impact BioMed

Celgene

Myelofibrosis / Small molecule

$7,000m

7th March

Ablynx

Sanofi

Broad / Camelid mAbs (nanobodies)

$4,550m

19th June

Ignyta

Roche

Oncology / Small molecule

$1,700m

7th February

SyntImmune

Alexion

Rare diseases (Autoimmune, Haematology, Neurology) / mAb

$1,200m

26th Sept.

Prexton Tx

Lundbeck

Neurology / Small molecule

$1,115m

16th March

ARMO BioSci

Eli Lilly

Oncology / Cytokine

$1,600m

22nd June

Agilis Tx

PTC Tx

Neurology / In vivo Gene Therapy

$945m

23rd August

Sucampo

Mallinckrodt

Gastrointestinal, Ocular, Neurology / Small molecule

$840m

13th February

Wilson Tx

Alexion Pharma

Rare disease (Wilson Disease) / Small molecule

$840m

11th April

Cascadian Tx

Seattle Genetics

Oncology / Small molecule, mAbs

$810m

9th March

Tusk Tx

Roche

Oncology / mAbs

$763m

28th Sept.

*SMA: Spinal Muscular Atrophy

Table 2: UK Biotech M&A and fundraising events ≥$50m (2018). Source: PitchBook (31st October 2018)

Company

Event

Total deal size

Therapeutic focus / Technology

Date (2018)

Tusk Tx

M&A - Roche

$763m

Oncology / mAbs

28th Sept

F-Star Gamma

M&A - Denali Tx

$471m

Oncology / bispecific mAbs

30th May

Orchard Tx

IPO

$200m

Rare disease (LSDs**, Haemaglobinopathies, Immune deficiencies) / Ex vivo Gene Therapy

31st October

VC – Series C

$144m

13th August

VC – Series B

$120m

29th March

Autolus Tx*

IPO (NASDAQ)

$150m

Oncology / Engineered T cells

22nd June

Freeline Tx

VC – Series B

$118m

Rare disease (Haemophilia) / In vivo Gene Therapy

19th June

Quethera

M&A - Astellas

$109m

Ophthalmology / In vivo Gene Therapy

10th August

Artios Pharma*

VC – Series B

$84m

Oncology / small molecule

9th August

MeiraGTx

IPO (NASDAQ)

$75m

Rare disease (ophthalmology, neurodegenerative) / In vivo Gene Therapy

8th June

Crescendo Biologics

VC – Series B

$70m

Oncology / Small mAbs (humabodies)

30th April

ReViral

VC – Series B

$55m

Infectious disease / Small molecule

1st August

Juvenescence

VC – Series A

$53m

Aging / unknown

6th July

*Arix portfolio companies; **LSDs: lysosomal storage disorders

Closer to home, UK companies are leading the way in transformational science and have raised significant capital to do so (Table 2). In June this year, UK cancer biotech Autolus Therapeutics (NASDAQ:AUTL), a UCL spin-out, raised US$150m in an upsized initial public offering, which was priced at the top if its range. In August, Cambridge (UK) based Artios Pharma, a world leading DNA Damage Response (DDR) company developing innovative treatments for cancer, announced an expanded and oversubscribed $84m (£65m) Series B financing. The consortium, put together by Arix, included blue-chip global investors. The fundraise was a strong endorsement of Artios’ world-leading development pipeline and reflects the opportunity for DDR to yield new breakthrough oncology products.

Overall, 2018 has seen continued interest in biotech, and the increasing availability of finance should be positive for biotechs looking to raise capital, while resulting in increasing competition among VCs for the top-tier opportunities. These highly sought after deals are commanding higher valuations, giving companies the luxury of extending their cash runway further and reducing their financing risk in the near future. More importantly, and on a positive note, this is good news. The capital will allow companies to advance their programmes further and potentially develop and bring transformational treatments and therapies to patients worldwide.