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The tide has been rising in biotech investment in 2024—though it has not lifted all boats equally.
While the volume of investment improved in the first half of 2024, much of it went to a few “mega deals,” leaving many promising small biotechs still seeking funding, according to data presented during the Oct. 15 opening panel of the 2024 BIO Investor Forum in San Francisco, hosted by the Biotechnology Innovation Organization (BIO).
Still, the situation is improving, according to panelists in the session, “Understanding the Fundraising Environment for Biotech Companies,” which was moderated by Jesse Essaff, Director, Life Science & Healthcare, Commercial Banking – HSBC Bank USA.
“It definitely feels we’re on somewhat of an upswing,” said Lori Hu, Managing Director of Vertex Ventures HC. “IPOs are not at pre-pandemic levels yet, but we’re seeing more liquidity in the market than we were.”
Watch: Bio.News interview with Lori Hu, Managing Director of Vertex Ventures HC
The session began with a presentation of the macro scene from HSBC’s 2024 Venture Healthcare Report by Jonathan Norris, Managing Director of HSBC Innovation. He noted that venture capital (VC) investment into healthcare in Europe and the U.S. in 2023 was at $45 billion, down more than 50% from 2021 and about 30% off of 2022. The first half of 2024 saw $25 billion of VC investment, up 34% from the same period in 2023.
A lot of that volume was driven by “mega deals” in biotech, like the $1 billion funding round by Xaira, he said.
Current innovators deserve funding
Part of the reason for the “mega deals” is the rising cost of drug discovery, according to Srini Akkaraju, MD, Founder and Managing General Partner of Samsara BioCapital. When he started in venture capital 23 years ago, a phase III clinical trial typically cost around $100 million, but now the average is more like $300 million, he said.
Hu said partnering with several investors to back bigger deals might make sense in this environment, but she and Norris noted that the result is diluted ownership. That’s one reason Hu said her venture capital company avoids mega deals.
Although we may be in a slow investment cycle, Akkaraju said it is a remarkable time for innovation. He told the panel that 30 years from now, we’ll look back on this period as a time that transformed many lives, and this innovation deserves backing.
“Investors should be incredibly aggressive about putting money to work, but that has not been the case, as all of you guys know. Many of you in the audience are trying to raise money,” Akkaraju said. “I do feel like the market is getting a little bit better. Interest rates are coming down. People are starting to actually come off the sidelines.”
For those companies that don’t have the impressive data that inspires mega deals, “M&A has been a bright spot over the last year,” and is essential for early-stage companies, Hu said.
Norris agreed. “On the M&A side, all the way back starting around 2015 or so, we really did see a big-pharma focus on early stage—early stage being preclinical into phase I, and I think that that stayed.”
Data and personal connections
While mergers and acquisitions continue to provide support for earlier-stage assets, Hu said investment through venture capital and initial public offerings (IPOs) is only going to later-stage companies with good data from clinical trials.
“I think what we’re seeing in the market is still a lot of movement toward clinical stage assets,” she said. “If you’re already seeing clinical data, that’s a much easier story, and that’s where we’re seeing a lot more concentration.”
Akkaraju agreed that good clinical trial data is essential for drawing investment in this market.
“If you have negative data, you’re annihilated. If you have mixed data, you fair pretty badly,” he said. “If you have really good data, it’s a market that is rewarding that data.”
Knowing how to present data therefore becomes essential for CEOs, he said.
“Experienced CEOs and management teams know what they need to put in front of investors to capture their attention,” he said. “But it’s amazing to me how many first-time CEOs stumble around a little bit on that. It tends to end up being much more about their excitement and their passion,” when they need to show concrete data.
Along with ensuring they have strong numbers, Hu advised any biotech CEO seeking funding to work on building personal contacts with potential investors.
“I think at the end of the day, it’s a people business and it’s a relationship business and you want to be investing in people that you know,” she said.
