May 14, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
Cambridge, Mass.-based biotech is celebrating another booming round of venture capital raising, with early-stage life science firm MPM Capital saying Thursday that it has now become the third company in the region to close an oversubscribed fund to the tune of $400 million.
That addition means that three of the area’s hottest VC shops, Atlas Venture, Flagship Ventures and MPM, now have around $1.2 billion to invest in early-stage biotech and medical device firms.
MPM had initially aimed to raise $380 million for its MPM BioVentures 2014 LP fund, but new investors including Novartis AG and Astellas Pharma Inc. have pushed that number higher. The company declined to comment on the news.
MPM’s fattening coffers come almost immediately after Cambridge, Mass.-based Atlas Venture its 10th fund for a whopping $280 million on April 17, and not even two months after Flagship Ventures said it had finished up an oversubscribed $573 million fund.
The interest from investors is hardly surprising, particularly in early-stage companies. VCs are increasingly looking for novel places to put their biotech dollars, with three times more venture capital dollars spent on drug improvements than on new drugs in the last decade, found a study published in February by the Biotechnology Industry Organization (BIO).
It also found VCs are increasingly interested in rare diseases and shying away from Series A rounds.
The first-of-its-kind study was released in February and covers a 10-year-period from 2004 to 2013 and set out to “better understand investor trends in order to determine where scientific or policy issues may be impacting the ability to maintain a robust pipeline of innovative medicines.”
“Since venture financing is the lifeblood of our industry, we wanted to better understand trends in venture financing over the last decade by conducting the broadest, most comprehensive study possible,” said Cartier Esham, executive vice president of Emerging Companies in a statement. “The aim was to identify funding trends for emerging drug developers within specific therapeutic areas and across varying levels of innovation.”
The report draws on data from four venture capital databases, including Thomson Reuters, BioCentury, Elsevier, Inc. and Evaluate Pharma. It evaluates 1,200 U.S. drug companies that received more than 2,000 rounds of funding over a 10-year period totaling over $38 billion.
It found that VCs have turned their focus in recent years to specialty and rare-disease medicines, often because they carry enormous price tags but are so crucial to patient health that insurers have no alternatives but the pay for them. That leaves investors in prime financial condition.
“VCs will pull back from areas that are seen as having unfavorable or unpredictable regulatory and reimbursement hurdles,” the BIO report said. “This has had some impact on tilting investment over the last few years toward drug R&D for small populations and rare diseases.”
Novel science is also raring back, with biologic now getting 50 percent of VC funding, though less money is being put into novel drug research. That is particularly true in areas with massive public health issues, such as diabetes and gastrointestinal, respiratory, and cardiovascular conditions. Instead, rare diseases remain a focus, because VCs have a track record of remaining patient in order to have a large payout when a company exits—something Big Pharma has long struggled to come to terms with.
“We see significant interest in rare diseases as gene therapy technologies mature and generate meaningful clinical data and returns for investors,” Soffinova Ventures partner Jim Healy said in the BIO report. The study, titled, “Venture Funding of Therapeutic Innovation: A Comprehensive Look at a Decade of Venture Funding of Drug R&D” is authored by David Thomas and Chad Wessel. Thomas is Director of Industry Research & Analysis for BIO and Wessel is Manager. The report provides detailed analysis of various aspects of funding and research, including breakdowns by diseases/organ type, such as diabetes, psychiatry, gastrointestinal and cardiovascular, as well as by funding type.
Additional findings are that in 10 years, 78 percent of U.S. venture funds for therapeutics were spent on novel drug research and development. Despite the funding, there was a 21 percent drop from the five-year period of 2004 to 2008 and the five-year period from 2009 to 2013, sharply marked into two distinct halves by the financial crisis of 2008 and 2009. As previously reported by BioSpace , there are fewer first-time Series A financing rounds recently, dropping by 30 percent from a high in 2006.
The report examines broad categories of venture capital investment, noting trends and digging into causes.
“The JOBS Act, signed in 2012, has been a key factor in opening capital markets to small innovative biotech companies,” said Jonathan Leff, a partner in Deerfield Management in the report. “The increased access to public markets has already started a favorable feedback effect of capital flowing back into private start-up companies.”
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