Investment in Biopharma is Reaching an Inflection Point

Money Dollar Bills

Emerging biopharma companies are vital to the creation of many novel therapies and health technologies, and play an important role in the future of early-stage drug development. Little wonder U.S.-based biotech companies are the darling of private equity, venture capital companies and institutional money managers.

During the past two years, fundraising and investment in biotechnology have reached record levels. These factors have translated into elevated IPO activity and an overarching positive outlook.

Private investments have been led by healthtech and biopharma, and the first half of 2020 saw a general year-over-year increase in biotech investment. The surge was led by 26 financings of $100 million plus, totaling more than $5 billion. The first quarter of 2021, on the other hand, climbed to a record $23.4 billion in private investments, beating out the quarterly record set in Q3 2020 by 56%. This momentum continued into the second quarter of 2021 with total investment in healthtech and biopharma equalling $23.9 billion.

According to data from IQVIA, around 80% of the industry's drug development pipeline comes from emerging biopharma companies, which means small companies are the most influential in developing innovative new therapies. Emerging biopharma companies account for 84% of worldwide early-stage R&D and 73% of late-stage research.

In 2020, VC activity in biotech grew by 45%, bringing the global total to $36.6 billion USD, and the U.S. led the way.

America’s Hotspot Biopharma Clusters

In particular, America’s east coast hubs excel due to an enviable university system, innovative biotech companies and the presence of large pharma companies like Pfizer, Johnson & Johnson and Merck & Co. Adding to the allure are plentiful enterprise partnerships, a robust entrepreneur ecosystem and a well-functioning incubator system.

New Jersey leads the nation in big names. There are 139 U.S. Food and Drug Administration-registered biopharmaceutical manufacturing facilities in the state, and 25% of all cell and gene therapies are being developed there. Among the largest biopharma companies in the country, 13 are in New Jersey, along with 3,280 life science establishments. More than 50% of all new FDA novel medicines approved in 2019 were from companies with a footprint in New Jersey.

New York, home of Pfizer and Bristol Myers Squibb is ranked second in the nation for bioscience jobs. A $1.8 billion expansion in Tarrytown, NY by Regeneron Pharmaceuticals announced mid-July is set to add 1,000 jobs over the next five years, with the company also adding to its research, preclinical manufacturing and support facilities.

What New Jersey is to big pharma, the same can be said of Massachusetts when it comes to biotech. In 2020, biopharma employment grew by 5.5% to about 85,000 jobs, and the state’s industry raised $5.8 billion in venture capital.

Over the past 15 years, Massachusetts has seen a 92% increase in biopharma employment, Massachusetts Biotechnology Council said in its latest industry snapshot.

MassBio said the record-breaking rates at which Massachusetts-headquartered firms are raising VC funds is leading to “incredible growth in the real estate pipeline to meet the demand of biopharma companies that are choosing to launch and scale across Massachusetts.”

One such company, Nuvalent, launched with $50 million in Series A financing from Deerfield Management to develop innovative small molecule kinase inhibitors for programs in non-small cell lung cancer (NSCLC).

The Boston metropolitan area, and in particular Cambridge, seems to be holding its own as the pre-eminent biotech hub in the world. At the end of August, biotech start-up Laronde raised $440 million in a Series B round. Laronde is creating endless RNA, a novel, engineered form of RNA that is programmable to express therapeutic proteins to the human body.

Biogen and Vertex are the largest biopharma employers in Massachusetts, followed by Moderna.

In addition, seven Korean pharmaceutical and biotech companies have recently moved into the Cambridge Innovation Center to expand their reach into the U.S.

Eager to grab some of the action, Texas is determined to plant its flag as the next US biotech hub. Oncology leads the way here, with over 4,700 drug indication programs under development, equal to 71% of all global pipelines. Emerging biopharmas' pipelines are robust here, ranging from start-up to mature, according to a recent BIO Industry analysis.

A Focus on Cancer Treatment  

It is oncology that continues to dominate financings through later-stage deals. Cancer therapeutics were among the top indications with Series A funding, with 25 deals valued at $497 million sealed during the first half of 2020. As for the full year 2020, 44 deals were struck at $1.3 billion, and the first half of 2021 accounted for 34 deals at $1.1 billion.

During Biotechnology Innovation Organization (BIO)’s annual conference in 2020, the organization released an analysis of venture trends. Companies with development pipelines focused on oncology and 'platforms' - therapeutic modalities applied to a wide range of disease spaces – topped the list of highest-valued private companies (79%) and IPOs (59%) since 2019.

Last month, Trillium Therapeutics was acquired by Pfizer for $2.26 billion in a deal valued at $8.8 billion. With this acquisition, Trillium's two lead molecules add to the buyer's portfolio of oncology drugs, both of which are early clinical-stage candidates that target CD47 for the treatment of blood cancers.

Trillium had been part of Pfizer's Breakthrough Growth Fund since September 2020, when the company invested an initial $25 million.

Through its acquisition of Trillium, Pfizer joins two other biopharmaceutical giants that are co-developing cancer drugs targeting CD47.

In September 2020, AbbVie agreed to partner with China’s I-Mab to develop and commercialize I-Mab’s anti-CD47 monoclonal antibody lemzoparlimab (TJC4). AbbVie gained exclusive rights to lamzoparlimab worldwide except in greater China, in return for $180 million upfront.

In March of last year, Gilead Sciences acquired Forty-Seven Inc. for $4.9 billion cash in a deal that gave the buyer control of magrolimab three months after it generated positive Phase Ib data in combination with azacitidine in untreated patients with higher-risk myelodysplastic syndrome and acute myeloid leukemia who were ineligible for induction chemotherapy.

This July, Eli Lilly and Kumquat Biosciences decided to collaborate. A research group within Lilly’s Loxo Oncology will employ Kumquat’s small molecule immuno-oncology platform to develop, commercialize and discover novel cancer drugs in a deal that could generate more than $2 billion for the San Diego-based biotech.

July also saw Amgen snapping up privately held TeneoBio in a deal that could total $2.5 billion. Amgen will gain several preclinical oncology pipeline assets for its arsenal.

Sovereign Wealth Funds Getting Involved

Much of Big Pharma's innovation is now bought rather than built. Incidentally, biotechs are attracting attention not just from Big Pharma players, which are targeting smaller companies as part of their acquisition strategy. Apart from serial investors, private equity and venture capital firms, sovereign wealth funds (SWFs) also are eyeing small, biotechnology startups and fledgling companies.

The financial backing of biotech companies by SWFs has grown as they recognize the potential of cutting-edge biotech startups in the US. These pools of public capital have accompanied hedge funds such as RA Capital, Deerfield and Perceptive Advisors in biotech investments.

Some biotech startups were directly accessed by SWFs, bypassing pharma venture funds. With a presence in San Francisco, Mubadala Investment Company has invested in several notable companies, including Recursion Pharmaceuticals, Outpace Bio, Alloy Therapeutics, Evotec SE and Science 37, Inc.

Other Gulf sovereign funds interested in biotech include the Qatar Investment Authority, which invested in Bright Peak Therapeutics, Entrada Therapeutics, Century Therapeutics, LLC and OncoResponse.

The biopharma industry and investors alike will anxiously anticipate end-of-year 2021 reports to map out plans for 2022 and beyond.


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