At first glance, venture investment for biotech slumped in 2019. By the raw numbers, 2019 lost on every metric compared with 2018. Total investment dollars dropped by $4 billion, to $13.9 billion in 2019 from $17.9 billion in 2018, and the average round size decreased, too, to $36.7 million from $40.2 million.
But that’s not the full story. What those numbers don’t tell you is that they may have dropped, but they stayed well above 2017 levels—and 2017 was a banner year for biotech venture capital, at least until 2018. Accordingly, Vantage called 2019 a retreat for biotech VC, “but not by much,” in its 2019 Review.
“There were few signs of restraint in 2019. … The average financing size dipped on 2018’s peak but remained at record levels; the frequency of mega rounds, those that amassed $100m or more, barely slowed,” Vantage wrote.
The number of rounds exceeding $100 million fell 18%, to 32 in 2019 from 39 in 2018, and the number of rounds exceeding $50 million dipped 15%, to 110 in 2019 from 130 in 2018. But the 2019 numbers were still double those from 2015 and 2016, and they dwarfed those for 2017, which saw only 19 rounds that exceeded $100 million and 76 rounds of more than $50 million.
This “points to an even more pronounced concentration of capital into the hands of a shrinking number [of] start-ups [as] the count of rounds raised fell to below 400 last year for the first time since at least 2010,” Vantage wrote.
“The focusing of capital reflects a shift in investment strategy that has been widely embraced by these company builders and which, as they describe it, allows start-ups to be properly funded and given the best chance of success,” Vantage wrote.
Silicon Valley Bank noticed a drop in series A dollars, especially in the oncology space, which saw a 46% decrease in series A funding. This trend is reflected in the top 10 VC rounds of 2019 compared with 2018. In 2018, six of the top 10 VC rounds were early rounds: seed or series A financings. In 2019, only one of the rounds was a series A. The top 10 were all over the map, running the gamut from series A to E, with a trio of companies not disclosing how far along in the VC funding cycle they were.
“When you look at series A, the dollars came down fairly significantly (30%), but if you look at the deals, the deals were only down about 10% from 2018,” said Jon Norris, managing director at SVB and author of the bank’s 2020 Healthcare Investments and Exits report.
Norris counts three reasons behind the decline in series A dollars. First is the “slightly decreased pace of investment by traditional venture folks,” who had been investing very quickly in the past few years. As board members of the companies they backed, those investors “don’t necessarily have the time to invest as fast as they had in previous years,” Norris said.
“The second part of that is also getting a little bit of pushback from limited partners on raising funds so quickly,” he added. “It’s traditionally a three to three-and-a-half year period between raising one fund and the next, but in the past few years, that’s been compressed to two years between each raise.”
The third reason is crossover investors, which back private and public companies, changing what they’re doing.
“Crossovers were a little bit more focused on series A rounds in 2018 and became a bit more series B-focused in 2019,” Norris said. “Venture folks can decide how they want to syndicate these deals, so now, they’re syndicating more traditionally in series A rounds rather than inviting crossovers to make the series A really, really big.”
At the end of the day, Norris doesn’t think the 30% drop in series A dollars is “a crisis or a scary thing.” It’s more of a function of timing, he said, thanks to a swell of series A interest in 2018.
Topping 2019’s biggest VC rounds is BioNTech, which took the No. 6 spot in 2018. It raised $325 million in its series B round, en route to its $150 million IPO. BridgeBio Pharma came in second with its $299 million round, which also came before an IPO within the year. These two were the only rounds to exceed $250 million in 2019, while in 2018, all of the top 10 rounds raised at least $250 million.
Poseida Therapeutics had planned to go public, too, but it called off its IPO when it found it could raise more cash privately. Peloton Therapeutics made an exit, too, but through M&A: It had planned to list on the Nasdaq two months after banking a $150 million series E round, but it canceled those plans when Merck ponied up $1.1 billion to buy the company outright.
Vantage wrote at the dawn of 2019 that “many assume that 2018 will not be repeated.” It was right. But even though the sums VCs are pouring into young biotechs have “moderated somewhat,” the industry remains “well-funded and keen to deploy capital,” Vantage followed up in its 2020 Preview. And, it noted, “the trend towards mega-rounds” shows no signs of abating.
Data: Top 10 biotech venture rounds from Vantage, the independent editorial team of Evaluate Ltd.