Most new drug companies start small, with few staff members and little money. So in exchange for equity in their company, biotechs can raise much-needed cash from venture funds looking to invest in a technology early in order to earn a big pay-off down the road. Experienced individuals from the venture capital firms usually play a key role making decision and guiding the new company through the development process. 

Venture capital funds will, at various stages, provide fresh infusions of cash if a biotech's program shows promise and continues to move through the clinic without hitting any major speed bumps. Ideally, the drugmaker will exit when the it's in a position to demand a premium price. Promising Phase II or, better yet, Phase III data could tempt a larger company to make a pricy buyout offer. Alternately, some developers attempt to raise money by filing an IPO. This is a gamble at best. While some high-flying developers like Pacific Biosciences have had success on the open market in recent months, investors still lack an appetite for small developers with no drugs in the market and the risk of an FDA delay or rejection looming in the future.

In 2010 biotech venture capital investing began to recover from its 2009 low, growing three percent in the number of dollars raised and eight percent in the number of deals which were struck. That represents a significant bounce-back from 2009, which saw biotech investing plummet 19 percent during the worst of the economic crisis. The industry dropped to second place overall behind software, with $3.7 billion going into 460 deals.

Tag:

Biotech Venture Capital

Latest Headlines

Latest Headlines

Cosmetics group leads $7M round for dermatology upstart Brickell

Miami-based Brickell Biotech grabbed $7 million in a new venture round led by a South Korean cosmetics company to back its work on new chemical entities for dermatology.

NC development team nabs $5M angel tranche for its latest biotech play

Just about every biotech investor out there has been looking for just the right recipe of money, time and multiples to justify the high risk involved in betting on drug development. The decade-long cycle in search of a 10x or better return is in distinct disfavor now, with investors looking for tighter timelines and better odds in exchange for smaller but more predictable payoffs.

Third Rock bankrolls cancer immunotherapy upstart with $47M A round

Third Rock Ventures is committing $47 million to launch a startup biotech focused on cancer immunotherapeutics, one of the hottest fields in drug R&D today.

Venture firm preps $100M fund for late-stage life sciences investments

Following a well-defined trail of venture groups into late-stage investing, San Francisco-based Foresite Capital Management says it has wrapped a $100 million fund that will be heavily focused on the most disruptive and most promising late-stage technology it can find in biotech, genomics and diagnostics, among other healthcare fields.

Langer biotech adds $16M in venture cash to back next-gen cancer drugs

The startup biotech Blend Therapeutics rang in 2012 with seed cash and will now close out the year with a fresh injection of $16 million in B-round bucks budgeted to take this startup--one of the latest from the prolific scientist Robert Langer--right to the threshold of clinical development.

Apple Tree inks $305M drug deal for new portfolio game plan

The venture players at Apple Tree Partners have in-licensed a late-stage opioid addiction therapy from Titan Pharmaceuticals in a $305 million deal that's short on upfront cash and long on a new strategy to build up a portfolio of life sciences companies with the help of a pair of industry veterans.

UPDATED: GlaxoSmithKline backs upstart's $17M A round for therapy against bulging-eye ailment

River Vision Development has wrapped up a $17 million first-round financing for a therapy that combats an illness that causes loss of vision and eyes to bulge from the socket. The lead backers include GlaxoSmithKline's venture unit SR One and Lundbeckfond Ventures.

Sofinnova reaps $312M for its dedicated life sciences fund

Bucking weak investor interest in the life sciences, Paris-based Sofinnova--a longtime player in biotech venture circles--has put together a $312 million fund that will be entirely dedicated to the life sciences.

Exclusive: Cerulean hauls in $13M, revs up deal talks as it nears PhIIb cancer data

The Cambridge, MA-based biotech's CEO tells FierceBiotech that the company has topped up its accounts with $13 million in fresh venture cash from its consortium of A-list backers. Read more >>

Flexion banks $20M VC round, shifts focus to late-stage osteoarthritis drugs

Instead of taking assets to proof-of-concept in a fast march through the clinic and then striking deals for their programs, as originally planned, Flexion's top execs have seized on the success of their clinical-stage osteoarthritis drugs and plan to stay focused on their pipeline--pursuing late-stage work, perhaps all the way through Phase III.