In the first quarter of 2016, private U.S. biopharmas tracked by BioWorld Snapshots raised about $380 million less than the same quarter in 2015, but the year-over-year decline was easy to shrug off because the first quarter of 2015 contained a monster $450 million series C round by Cambridge, Mass.-based Moderna Therapeutics Inc. "Call it up 4.7 percent on an adjusted basis," I quipped at the time. (See BioWorld Today, April 4, 2016.)
Unfortunately, the excuses for the second quarter require a little more hand waving.
Companies raised about $1.2 billion less in the first half of 2016 compared to the year-ago period. The year-over-year deficit is clearly going in the wrong direction quickly.
The difference comes from a drop in the amount of money raised by more advanced companies seeking series C and later investment rounds. The aforementioned Moderna Therapeutics falls into that category, but that only accounts for a fraction of the deficit. Even if you throw in Boston-based Intarcia Therapeutics Inc.'s $225 million royalty-equity hybrid deal and Culver City, Calif.-based Nantbioscience Inc.'s $100 million, the large 2015 deals only account for a little more than half of the roughly $1.3 billion year-over-year drop in late-stage financings. (See BioWorld Today, April 29, 2015.)
With the median size of a series C or later deal up slightly year over year ($40 million vs. $37.1 million), it appears the rest of the decline in investments comes from the sheer drop in the total number of deals. There were 38 series C or later deals in the first half of 2015, which dropped to just 18 in the first half of this year.
Perhaps the venture capitalists (VCs) have decided that the later-stage companies aren't worth investing in, but the more-hopeful hypothesis is that there just aren't that many of them. Period.
The IPO boom in 2014-2015 created more than 125 newly public companies within two years, eliminating them as candidates for series C money. Add in somewhat lean times in the years prior when companies that would need series C money now would have been created, and the drop in late-stage investments doesn't looks so bad.
Looking at the earlier-stage companies, there is reason to be optimistic about the future, with the total amount raised for both series A and series B investments increasing year over year.
New startups raised almost 10 percent more money in the first half of 2016 compared to the year-ago period. As we saw in the first quarter, there were quite a few large series A rounds – 13 of the 40 deals were $45 million or more – helping boost the amount raised despite slightly fewer number of deals. It appears VCs might be throwing more money into their highest conviction startups.
Series B investments were up a modest 3.8 percent year over year in the first half of the year on more deals – 25 vs. 21 in the year-ago period. Of note, the fraction that already had a drug in the clinic dropped from 62 percent last year to 48 percent this year, implying VCs are willing to throw in additional money earlier or companies are taking longer to get drugs in the clinic, depending on whether you're feeling optimistic or pessimistic.
Circling back to the other end of the investing spectrum, the number of companies that went public dropped year over year in the first half, from 31 last year to 18 this year, but that was widely expected after a couple of banner years.
The 11 deals in the second quarter topped the seven deals in the first quarter, although the amount raised fell year over year. Call it a mixed bag, but what can you expect from this choppy market?
