VC still interested in biotech, says McKinsey

The market is volatile, to say the least – but it’s not entirely bad for biotechs, especially those with innovative science, said McKinsey & Co. researchers speaking at the 2022 BIO International Convention.

In 2021, venture capital firms invested in 3,100 biotech start-ups, with biotech companies raising more than $34 billion the same year, according to McKinsey research released last week.

Now, funding has declined – but VC is still interested in biotech, especially companies with the most cutting-edge technology, they say.

“Companies with platforms that are able to deliver interesting therapies will still be able to get the funding they need,” said Lydia The, Ph.D., Partner at McKinsey, speaking during a BIO International Convention session on Wednesday, June 15. This is due to a few reasons – including the fact that large pharmaceutical companies have “dry powder” to the tune of $320 billion, enough to buy all the biotech small caps.

“The market is an opportunity for some companies,” she emphasized.

But how are companies thinking about the market?

“We better brace ourselves,” said Shobha Parthasarathi, PhD, VP of External Innovation and New Ventures at VC firm Xontogeny. Current market conditions “could be here for a while and could be painful, so we’ve got to figure out strategies to deal with it.”

Immediate steps companies can take include pulling back on plans for real estate and hiring, said David Fontana, PhD, Chief Business and Strategy Officer at Umoja Biopharma, a small biotech working on solid tumors and blood cancer.

Small biotechs should remain “laser focused on the portfolio,” asking investors what data they want to see before embarking on trials and focusing on experiments to prove value, he added.

Speakers agreed that partnerships with big pharmaceutical companies can help smaller ones stay afloat.

“Do what’s necessary to advance your program – but it’s a good time to do it though partnerships,” said Parthasarathi.

Partnerships can help small companies ensure they “don’t have to raise money anymore,” noted Marianne De Backer, MBA, MSc, PhD, EVP, Head of Business Development and Licensing at Bayer.

The state of VC investment in new biotechnology

McKinsey & Co. released new research on venture investment trends in new technology platforms, noting that six technologies are “generating significant investor excitement.” They are:

  1. Cell therapy 2.0
  2. Next-generation gene therapy
  3. Precision medicine
  4. Drug discovery enabled by machine-learning
  5. “Undruggable” targets, including “hard-to-hit proteins and hard-to-treat diseases”

The bottom line: while there is a downturn, “the breadth of innovation is still incredible,” said McKinsey Senior Partner Olivier Leclerc.

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