Silicon Valley law firm Cooley recently reported that it “managed 298 discloseable venture capital financings for the third quarter of 2022, representing $8.1 billion in invested capital, continuing a downward trend for both metrics and representing the lowest for both since the fourth quarter of 2019”.
The company said deal volume, dollar volume and deal size for life sciences company funding also continued to decline in the third quarter of 2022 compared to the second quarters of 2022 and 2021.
However, it was also in November that the American bank JP Morgan chose to announce the launch of its healthcare venture capital practicewhich will invest in early-stage or growth-stage companies in the space.
JP Morgan’s announcement comes at a time when, in the words of B Capital’s general partner and head of healthcare, Robert Mittendorff MD, “public market biotechs are down dramatically as interest rates rise.” interest increases and that the emphasis on short-term development outweighs the promise of longer-term development”. quarterly results and approvals.
Mittendorff is not alone in feeling this. Six active biotech investors we interviewed recently told us that the macro environment has certainly had a big impact on deal flow, valuations, and M&A in the biotech sector.
Where does that leave private biotechnology? Mittendorff says that startups in the space “consider reprioritizing their assets, decide whether to partner with second or third assets with strategies, and evaluate the structure of funding tranches to meet their fundraising goals.”
However, Big Pharma’s appetite for mergers and acquisitions is not as strong as expected, said Lux Capital director Shaq Vayda.
“While broader capital markets were anticipating a very entrenched appetite from major pharma due to falling valuations, in practice it appears they prefer partnerships over royalty deals for programs. at a later stage and corporate venture capital as an early stage engagement tool. .”
That’s not necessarily bad news for venture capitalists, who seize opportunities that others don’t even see. For example, Mittendorf noted that he and his colleagues at B Capital “view market sentiment as too negative.”
Among the opportunities biotech VCs see, it is increasingly common for an AI component to be involved. “The pervasiveness of AI in the locations I see is striking,” James Coates, director of health and human performance at Decisive Point, told TechCrunch.
You may have heard of AI’s involvement in drug discovery before, but there’s more, said Sarah Guo, founder of Conviction.
“We have seen incredible progress over the past few years in AI models for protein folding and docking – key scientific problems. But when we look to the commercial side, there are also opportunities for a richer use of data and smarter software workflows to increase effectiveness and efficiency at all levels in healthcare: from diagnostics, telemedicine, clinical trials, patient engagement and from clinician decision support to revenue cycle management and claims processing,” she said.
However, investors are also more thorough in their due diligence than in previous years, and not just because of Theranos. For example, Franck Lescure, a partner at Elaia Partners, said his firm has seen “an exponential increase in concerns about climate and environmental issues, regardless of the project, which was previously just a ‘good to go’. to have”.
Among other trends, the impact of deteriorating US-China relations is on investors’ minds. “We’ve already seen CFIUS impact some of the transactions we’ve been involved in,” confirmed Francisco Dopazo, general partner of the Humboldt Fund.
If U.S. sanctions on China were to extend to biotech, Dopazo said “the impact could range from funding (e.g. companies won’t be able to tap into strong, strategic Chinese capital) and scaling (e.g. harder access to sophisticated CROs) to business development and commercialization (e.g. fewer options for business development agreements) Clearly a negative impact in the short/medium term on the industry as a whole.
To learn more about how investors view the implications of US sanctions on China, what startups should consider when capitalizing on government agencies, how to introduce these investors, and more, read the full survey here.