Yesterday's news that Moderna raised $450 million on the back of its preclinical R&D work--on top of the $500 million it already banked--stood out as the biggest new venture round recorded for an early-stage biotech like this. But it's still just a piece of the money that's been flowing into biotech over the past year--and a likely harbinger of more good things to come in 2015.
Life science-related IPOs rocketed from an anemic 11 in 2012 to 37 in 2013 and a red-hot 79 in 2014, reports Jonathan Norris, a managing director at Silicon Valley Bank, in his annual assessment of the life sciences industry's appetite for new deals. "This robust activity, combined with substantial deal-making in the private venture-backed M&A arena, resulted in spectacular returns that were double those of 2012 and more than 25 percent higher than the previous record year of 2013. Potential returns, which SVB calculated with a conservative formula, reached $18.5 billion in 2014, by far the best performing year since SVB started tracking this data in 2005."
Over the course of 2014, Norris adds, early-stage biotechs accounted for 41% (26 preclinical and Phase I companies) of the 63 biopharma IPOs that dominated the scene, up sharply from the 24% average for the two previous years, as the IPO window opened wide. With IPOs running stronger, Series A venture rounds for biotech companies have swelled as competition for new technology sharpened. Corporate venture arms helped support private venture groups in driving a big increase in the amount of Series A cash flowing to early-stage ventures, many of which are planning earlier than ever on going public or executing an M&A deal.
"Investors have changed in terms of what they see as an exciting story on the biopharma side," Norris says in an interview with FierceBiotech. Those early-stage, innovative biotechs out there that look like they have a sustainable couple of years ahead in terms of news flow are looking much better these days to investors. As a result, the time from a Series A round to an exit has dropped to an average of 4.2 years, the quickest turnaround for private investors in a decade. And at least three biotechs delivered 20x returns for investors, demonstrating the potential for stellar profits.
Still, the bloom is off the rose. After the first big IPO wave hit in 2013 and early 2014, the pace began to wane in the second half of 2014, with pre-money valuations and money raised at IPO dropping last year compared to 2013. In the year ahead, Norris expects that the IPO window will stay open but the pace will slow down to 2013 levels. High-profile biotech failures could still send a chill through the markets, he adds, but the underlying strength in biotech looks solid--for now.
"Overall, it's just a fantastic exit environment for private equity-backed backed companies," he sums up. And that's a high note that will likely remain sustained throughout next week, as the industry congregates at the big JP Morgan event in San Francisco and looks to the year ahead. -- John Carroll (email | Twitter)