Beyond borders 2016

Biotech financing

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Bountiful harvest leaves biotech well prepared for winter

For the second year in a row, the biotechnology sector’s financing total reached unprecedented heights. Biotechnology companies raised nearly US$71 billion in 2015, easily surpassing the record US$56 billion amassed the year prior.

Fueling this best-ever financial picture were record capital raises in three categories:

  • Follow-on offerings
  • Debt
  • Venture capital

It was also another stellar year for initial public offerings, with more than US$5.2 billion raised in IPOs, the third-highest total on record.

Whether large or small, public or private, biotech companies across the industry have been able to take advantage of the free-flowing capital over the past two years. During this period, they have filled (or refilled) their coffers with cash to drive future R&D and business development agendas.

Biotech is an industry known for cycling between booms and busts. Despite biotech’s record financial harvest, the inevitable winter is coming, and numerous signs suggest that public capital is becoming more scarce. For starters, the biotech indices have relinquished the past years’ enormous gains, and the queue of companies lining up for public offerings has dwindled. In this environment, the question to ask isn’t whether the climate is changing, but just how long this winter will last.

Key financing insights

Innovation capital — cash raised by companies with revenues of less than US$500 million — in the US and Europe reached its highest-ever total in 2015, eclipsing US$41billion, and dwarfing the 15-year average of US$17.4 billion.

This total included all venture, IPO and nearly all follow-on deals for the year, as well as a smattering of smaller debt offerings. Large debt offerings by Gilead, Celgene, Amgen and Biogen comprised the vast majority of the US$29.7 billion raised by the sector’s commercial leaders, and meant that innovation capital’s share of total financing was only 58% for the year.

Biotechs in the US and Europe raised an impressive US$3.5 billion in 235 seed and Series A financings, setting records for both dollars raised and deal volume. That burst of early-stage financing meant the proportion of venture funds going to early-stage biotech companies was greater than in any year this millennium, topping 30% for the first time since 2001, up from 25% in 2014. (The 15-year average is 24%).

In Europe, the early-stage share of venture financing was 41%, driven by Immunocore’s US$313 million Series A and a US$119 million Series A from Mereo BioPharma Group, which launched in July with three clinical-stage development programs licensed from Novartis.

In 2015, the volume and value of IPOs didn’t keep pace with the results posted the year prior. Still, 78 biotechs went public in 2015, more than twice the past 15 year’s annual average (34), tying 2000 for the second-most active year. Biotechs raised US$5.2 billion in these debut offerings (down 22% from 2014’s US$6.7 billion), the industry’s third-highest IPO total.

In 2015, US biotechs set multiple records in the venture capital financing category:

  • Total dollars raised (US$9.4 billion)
  • Largest number of venture rounds (441)
  • Average deal size (US$21.2 million)

These figures were bolstered by record participation from corporate venture funds and crossover investors. Importantly, venture capital was the one US financing category that didn’t experience a marked slowdown in the fourth quarter, suggesting that at least for now, interest in funding private biotechs remains strong amid a reduced public-market appetite.

For more on the biotech sector from our 2016 Beyond Borders report, look for these upcoming publications:

  • April 2016: A recap and analysis of 2015 biotech deals
  • June 2016: Our annual review of the biotech sector including a look back at 2015 financial results