Despite volatile biotech stocks limiting exit options, Sofinnova Partners’ latest € 472 million fund highlights the rise of European venture capital and its growing interest in early stage biotech investments.
Biotech fundraising broke records in 2020 as the Covid-19 pandemic swept the world. This year looks set to continue biotech’s winning streak in private fundraising. One example is the increase in funding for European investors in the life sciences sector, which was complemented this week by the € 472 million Capital X fund from venture capital firm (VC) Sofinnova. Partners, dedicated to supporting early stage life science companies.
Henrijette Richter, Managing Partner of Sofinnova Partners, told me that the impressive size of the fund was largely due to the reputation and track record of the team.
“The context of the global pandemic, which demonstrated the importance of bringing new innovative and effective drugs to patients, further fueled interest in Capital XRichter said.
The insanity of private biotech investment contrasts sharply with the recent performance of biotech stocks in the United States and Europe, which has been very poor since their prices peaked in February.
“We have a slightly anemic public market environment; at the same time, the level of private capital deployed is enormous“said Nooman Haque, Managing Director of Life Sciences and Health at Silicon Valley Bank UK, at Terminals’ European biopharmaceutical summit last week.
The past month in particular saw a 10% drop in several biotech stock indexes, alongside a drop in the stock prices of companies listed on the Nasdaq in several sectors. The hardest hit biotech stocks were the small and mid-cap companies on the Nasdaq, represented by the S&P Biotech Index (XBI), and biotech companies listed on Euronext, which are followed by the Next Biotech Index ( BIOTK).
“What is striking is that this year biotechnology [stocks] of almost all European countries are declining“Bertrand Delsuc, founder of business intelligence firm Biotech Radar, said in a discussion on Twitter Spaces he moderated last week. The only exceptions to this trend were stock prices in listed UK and Danish biotechs. in Europe.
The reasons for the volatile stock market are manifold, including factors such as fears of inflation, fears of security in gene therapy programs, individual corporate setbacks, and government policy.
“State-owned biotech companies have faced tough questions about drug pricing as the bigger players in the early stage platform continue to work on their science rather than their products,Richter noted.
The biotech market for initial public offerings (IPOs) has seen a few hiccups, such as the delisting of NH Theraguix from Euronext last week, but overall it has remained strong. Last month, two notable European life sciences IPOs came from two UK companies: sequencing heavyweight Oxford Nanopore Technologies and artificial intelligence-assisted drug discovery specialist Exscientia.
“I think we are heading for another record year in terms of not only the capital raised but also the number of IPOs made by the companies,“Said Lenny Van Steenhuyse, Life Sciences equity analyst at KBC Securities, during Delsuc’s discussion. “It’s of course more straightforward in the United States than in Europe, but still here in Europe, we’re seeing a bit of a catch-up effect.“
While venture capitalists enjoy a major windfall from their limited partners, the mixed landscape for biotech stocks makes it more difficult for many of these cash-infused life science venture firms to dodge. ” get an exit and a return on their investments. IPOs aren’t considered true exits – VCs often sell their shares in the years following an IPO – and the best outcome is a merger and acquisition (M&A) deal of their portfolio company with a large pharmaceutical company.
“I have this image in my head of a python swallowing something like an elephant and there is a bulge of capital that must be escaping somewhereHaque said. “Mergers and acquisitions of large pharmaceutical companies are fairly light; it hasn’t really changed much. At present [big pharma companies] seems quite introspective.“
One approach to tackling portfolio bloating is to aggregate multiple biotechs into a single, larger company. Medicxi took this route when it formed Centessa Pharmaceuticals in February this year, bringing together a group of portfolio companies including ApcinteX, Morphogen-IX and Orexia Therapeutics.
Additionally, a large influx of liquidity into early stage private biotechnology is leading many life science venture capitalists to redouble their focus on cheaper start-ups and business creation. .
“We see a ton of capital in the B and C series and that leads to some frothy valuations,», Said Alex Pasteur, Partner at F-Prime Capital, at the European Biopharma Summit. “And so we prefer to do seed and series A and create our own deal flow. “
Sofinnova has a range of funding pots allocated to different types of biotech and medical technology companies, such as a cross-fund for late-stage clinical companies that it raised earlier this year. The company, which invests in biotechnology at an early stage even before the public market favors this approach, sees an influx of life sciences investors focused on the early stages as a welcome trend.
“What we’re seeing now is probably more of a return to normal,Richter said. “Our view is that we cannot plan for an IPO or a M&A route, and after going through tough economic times in 2001 and 2008, we know our businesses need to adapt to be nimble and successful. .“
Cover image via Anastasiia Slynko