Startup fundraising and exits look bullish for bio and health

After nearly a year, venture capitalists nabbed their first U.S. acquisition for at least a billion bucks. And it wasn’t even a startup. Nor was it a business on the list of famous unicorns. And it had nothing to do with blockchain.

No, the award for its first big exit at a really long time goes to Impact Biomedicines, a developer of cancer therapeutics which offered to pharma giant Celgene before this month. The trade was valued at up to $7 billion.

The deal, which includes $1.1 billion in cash as well as $5.9 billion in milestone payments, is even more astonishing since it involved a fairly new startup. Impact launched a bit over a year ago following licensing rights to the molecule Fedratinib, used to deal with a form of blood cancer, from medication developer Sanofi. Before the acquisition, Impact had increased only $22 million from a single company, health care investor Medicxi Ventures, along with debt funding.

It was, at the words of Medicxi founder Kevin Johnson, the type of departure  where “everyone goes home with a balloon. ”

However while the Impact acquisition stands out because of its size and speed, it’s by no means the only sizable life science trade in recent months. Silicon Valley Bank (SVB) counts 31 U.S. VC-backed biopharma IPOs at 2017, with median proceeds of $81 million, the highest in five years.

Acquisitions, while comparatively slow for both tech and life science startups this past year, also delivered some big outcomes  for pharma and health care businesses. Commonly, the biggest deals, like the Impact buy, include a combination of upfront and milestone-based payments.

Historical innings

VCs seem to believe it’s still early innings in the life sciences cycle. Though tech may dominate the headlines in startup-land, it’s bio and health care that are seeing document influxes of capital.

In the U.S. at 2017, healthcare-focused venture capitalists increased $9.1 billion. That figure was up 26 percent from 2016, per Silicon Valley Bank. More bucks are also flowing from venture firms that invest in a mixture of tech and life sciences through a single fund. That list consists of well-established VCs with plentiful dry powder to invest, including   Polaris PartnersFounders FundKleiner Perkins and Sequoia Capital.

Investment is up. In general, investors put $21 billion to operate in biotech and health care deals at seed through late-stage internationally in 2017, according to Crunchbase data. Of that, $14.5 billion has been in U.S.-based startups, tied with 2015 as the highest total in five years.

In the graph below we look at financing trends for the past five years:

More combine the bio bandwagon

Another bullish indicator for life science and health care financing is the number of prominent seed and venture investors which are scaling up at the space or establishing dedicated funds and applications.

Last month, one of Silicon Valley’s recognized VC firms, Andreessen Horowitz, increased  $450 million  because of its second “bio fund,” which intends to invest in the intersection of economics and engineering. It’s over double the size of the company’s final bio fund.

A couple of weeks later, Y Combinator, the Valley’s best-known incubator, declared  plans for a biotech track, with an initial focus on treating and longevity age-related diseases. And months before, Google Ventures’ founder Bill Maris abandoned his post at Alphabet to launch a new VC company, Department 32, that counts life sciences and health care as a main focus.

Even Impact backer Medicxi is relatively new to the space, at least as an independent business. It spun out of Index Ventures at 2016.

Where the money is moving

Depending on where the money is moving, the fight against cancer continues to draw the greatest levels of financing, in addition to many of the biggest exits.

An investigation of Crunchbase data found that, since 2017, over $3 billion in global venture capital moved to biotech and pharma companies focused on cancer treatments, with roughly two-thirds visiting U.S.-based startups. The biggest anti-cancer investments, broadly, fall in to two classes: oncology drugs and liquid biopsy technology.

On the pharma front, investors endorsed a number of mega-rounds for cancer drug developers. Substantial rounds in Q4 of 2017, for instance, comprised  $150 million in Series A financing for Cullinan Oncology and also a  $107 million Series C round for Arcus Biosciences.

Liquid biopsy investment, meanwhile, jumped, led by a $1.2 billion early-stage funding around for GRAIL, which develops blood tests to get lipoic acid detection. Cancer test provider Guardant Health also secured   $360 million  at a SoftBank-led funding.

Other areas that SVB cites too appealing for investors in 2017 comprise biotech stage businesses, neurotech and AI-enabled diagnostics.

Exits, leaves, leaves

Tracking exits and buyer returns for life sciences can be more complex than tech because of a few aspects.

For one, life science IPOs are generally used to raise funding for clinical trials rather than provide near-term exits for early backers. That means early investors might still be clinging to shares a couple of years following an IPO, poised to reap enormous returns in case of favorable clinical trial results, market adoption or an acquisition.

Additionally, the prevalence of milestone payments makes it hard to measure returns before a couple of years following an acquisition, when it’s possible to determine if a treatment’s original guarantee stands out.

Looking at the listing venture-fundraising amounts for biotech and health care, however it’s apparent VCs are managing to convince their own backers that the amounts will add up quite favorably.


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