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.


Biotech Venture Capital

Latest Headlines

Latest Headlines

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.

Bustling biotech pushes Cambridge, MA surge in VC deals, dollars

Even a casual observer of the biotech industry would know that Cambridge, MA, has seen a booming biotech sector fueled with a steady stream of venture deals. And in a year when venture deals and dollars have been considerably constricted overall, the Cambridge hub has continued to hum with VC activity.

Pearl lands $65M round to fuel PhIII COPD showdown with Novartis, GSK

Pearl Therapeutics has grabbed a hefty $65 million venture round, enough to bankroll the launch of a key late-stage COPD drug program that--one way or another--will prove transformational for the biotech.

MEI Pharma gains $27.5M as it takes another stab at cancer drug development

Just a few months after MEI Pharma ($MEIP) in-licensed a lead cancer program from S*Bio in Singapore, the drug developer put together $27.5 million in private financing to fuel an effort to push the HDAC inhibitor through a key mid-stage study. A pair of venture groups--Vivo Ventures and New Leaf Venture Partners--joined RA Capital Management and Three Arch Opportunity Fund in the raise.

Q3 biotech venture investing makes a boisterous leap

The life sciences industry gained a blast of good news on the venture front today. The National Venture Capital Association and PricewaterhouseCoopers outlined a buoyant set of numbers for the...

Report: Biotech backer OVP Venture Partners winding down

The Kirkland, WA-based venture firm is among the casualties of a sinking venture industry, and its eventual demise means one less source of fresh capital for startups in biotech and other sectors.

Longitude Capital pumps $385M into new life sciences fund

Menlo Park, CA-based Longitude Capital has rounded up $385 million for a new life sciences investment fund, exceeding its initial goal of $325 million. That money will be reserved for biotechs and device companies that have shown promise in mid-stage development or nearing commercialization, targeting a three- to five-year time horizon on payoffs.