VC investments hold steady in Q2, IPOs pick up steam

Print 13 July 2015
Brian Orelli / BioWorld

It wasn't the perfect second quarter, but we'll take it.

You'll recall, U.S. investments in private companies tracked by BioWorld in the first quarter of the year started off like gangbusters, more than doubling the funding in the year-ago quarter. IPOs, on the other hand, left something to be desired. (See BioWorld Today, April 2, 2015.)

In the second quarter, venture capital (VC) investments couldn't quite match the stellar first quarter, but the IPOs more than made up for the slight decline in VC funding.

First the ho-hum news: The 50 private-company investments in the second quarter fell just shy of the 53 seen in the first quarter. And total investments slipped from $1.94 billion in the first quarter to $1.79 billion in the second quarter.

The one bright spot in the second quarter was an increase in the funding of series A financings. Sure, it came at the expense of later-stage investments, but company creation should always be applauded; later-stage companies have the IPO market to gain funding anyways.

Twenty-five startups brought in $501 million in the second quarter compared to the 19 funded startups in the first quarter that grabbed $398 million. Of course all of the quarter-over-quarter increase in series A financing – and then some – can be attributed to South San Francisco-based Denali Therapeutics Inc.'s whopping $217 million initial investment. To put that VC series A investment in perspective, only three of the IPOs this year have raised more using public money. (See BioWorld Today, May 15, 2015.)

For the year, we're still pacing well ahead of 2014 with $3.73 billion in private biotech investments this year compared to $2.17 billion in the first half of 2014. Across the board pretty much every metric increased sans the series B investments, which were down year over year in volume of deals. Fortunately those that are able to make it that far were actually able to get more cash from the VCs, $827 million in the first half of 2015 versus $694 million in the year-ago period.

And while we're lauding the series B companies, how about the fact that none of the funded companies this year have been of the specialty pharma variety, defined as a company in-licensing drugs or using a platform to reformulate drugs. Maybe it's their innovation that helped increase their fundraising this year?

Moving onto IPOs, the number of companies going public on U.S. exchanges more than doubled from 10 in the first quarter to 21 in the second quarter. Gross proceeds from the investments in the newly public companies also more than doubled from $925 million in the first quarter to over $2 billion in the second quarter.

The 31 IPOs so far this year is smaller than the 38 deals tracked in the first half of last year, but the amount raised this year, $2.95 billion, topped the $2.63 billion raised in the first half of last year.

The increase might be due to the number of established companies that were already trading on foreign exchanges selling American Depositary Shares (ADS) to become dual listed. BioWorld has tracked eight ADS offerings so far this year, including Dublin-based Galapagos NV's substantial $241.5 million offering. (See BioWorld Today, May 15, 2015.)

Until next quarter, here's hoping the IPO window remains open and VCs keep handing out the capital. I doubt anyone will be complaining if the third quarter looks like the second.

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