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VC Funding: The Key Enabler For Biotech Start-ups?

Published: Apr 27, 2015

The biotechnology and pharmaceutical industry has evolved significantly over the last several years. The growth has been led not just by established firms but also by start-ups which have shown the courage to invest a significant amount of their time and money on innovative research programs. One of the key enablers behind the emergence of start-ups is the financial support they have received from Venture Capital firms, strategic investors and other public / private agencies.


In a recent article, it was reported that, in Q2 2014, Venture Capitalists invested USD 1.8 billion in biotech firms. The amount is staggering. Roots Analysis has been tracking the rise of these new companies in several of its projects. In fact, during our research, we identified that over USD 10 billion has been invested in different rounds of funding in start-ups over the last five years. This investment has supported growth in a multitude of domains; examples include Antibody Drug Conjugates, Gene Therapy, Oral Proteins and Peptides, Immune Checkpoint Inhibitors, Bolus Injectors and 3D Bio-printing. As a continuation of our efforts to monitor the trends in the industry, we decided to put together a list of several investments which have funded the start-ups in the industry recently. The primary intention was to identify research areas which have been at the forefront of investment and where individual / institutional / strategic investors are placing their bets on.




The current paper reviews the investments made by Venture Capitalists and other investors in the pharmaceutical / biotechnological start-up firms across the globe between 2010 to early 2015. During our research on this subject, our primary objective was to seek answers to the following key questions:

  • What are the key areas of focus from an investor’s perspective?
  • What is the rate at which investments are growing?
  • Within the various types, which are the most common / favoured modes of investment on which start-ups have relied upon?


The information that we captured for different firms included the total amount invested, year of investment and the type of investment. This data allowed us to present a high level view on the investment trends which are shaping up the industry. We hope that these insights are helpful not only to those individuals / firms which are analyzing the industry growth but also to those which are actively on the lookout for investment options within the broader industry.



Data Gathering

For the purposes of this assignment, we extended our scope to the investments made in over 230 start-ups; these firms belong to a wide array of industry domains and are globally well distributed. For each of these start-ups we identified, where available, the various instances of investments which have occurred in the last five years. In total, we were able to capture close to 600 such instances. It is important to mention here that we trusted the information that was presented on the company’s website as the most accurate source of information. In several instances, we have also included information from databases which provide reliable information on the nature / amount of funding.


Analysis and Presentation

Once the raw data set was ready, the collated data was reviewed on the basis of various parameters which included growth in number of funding instances, distribution by major types of investments and the amount of money invested (globally and under each mode). The analysis also encompasses details around some of the most common areas being targeted as investment destinations.


Number of Investments Have Risen Gradually Overtime

2014 witnessed the maximum instances (141) of investments. It has been observed that in early 2015, some high profile investments have already taken place. For instance, USD 450 million were invested in Moderna Therapeutics (focused on new class of drugs made of mRNA) by Viking Global Investors LP, Invus, RA Capital Management, Wellington Management Company, AstraZeneca and Alexion Pharmaceuticals.


Similarly, USD 100 million was invested by Silicon Valley Bank in Stem CentRxTM which uses stem cell centric philosophy and cutting edge technologies to develop novel cancer therapies and diagnostics.



It is important to highlight that the National Venture Capital Association Yearbook 2014 reported the biotechnology sector to be the second largest (next to the software industry) in terms of total investments made by the Venture Capitalists. It also stated that of the 81 venture- backed companies which went public in 2013, over 50% were biotechnology IPOs.



TABLE 1 Number of Funding Instances and Total Amount Invested, 2010 - Early 2015




Source: Roots Analysis


Table 1 highlights the number of funding instances recorded each year and the amount invested during the year in pharmaceutical / biotech start-up firms. The cumulative number of investments recorded during the period 2010 to early 2015 was 576 (Figure 1). Quite recently, in 2014, Juno Therapeutics received funding assistance for bringing out novel immunotherapies for oncology; the investment of over USD 300 million was made by Bezos Expeditions, Venrock, ARCH Venture Partners and the Alaska Permanent Fund in two funding rounds. Synergy Pharmaceuticals, developing drugs to treat gastrointestinal disorders and disease, also issued convertible notes worth USD 200 million in 2014.



The number of funding instances in start-ups grew every year from 2010 to 2014 except for the year 2011. This can be attributed to the overall weak global economy resulting in cautious investments across all industries in 2011. However, it is worth highlighting that 2011 witnessed a relatively higher number of high value investments. Specifically, Valeritas received funding of USD 150 million from MPM Capital, Pitango Venture Capital, Abingworth, Advanced Technology Ventures, ONSET Ventures, HLM Venture Partners, Agate Medical Investments, CHL Medical Partners, Kaiser Permanente Ventures for commercialization of the V-Go® disposable insulin delivery device. Tesaro received USD 101 million financing from Kleiner Perkins Caufield & Byers, New Enterprise Associates (NEA), InterWest Partners, T. Rowe Price, Pappas Ventures, Oracle Partners, Deerfield Management and Leerink Swann to advance and expand its oncology product portfolio. Similarly, Ascletis, which is discovering and developing drugs in the field of cancer & infectious diseases, received USD 100 million from Hangzhou Binjiang Investment Holding. During the same year, Biocartis received USD 100 million from Debiopharm Group™, Philips, Johnson & Johnson Development Corporation (JJDC), Wellcome Trust, Korys, Valiance, Biovest, IHL SA, PMV, New Rhein Healthcare   to commercialize a fully automated, compact molecular diagnostics system named Apollo.  Of the 79 companies which received investment in 2011, seven crossed the USD 50 million mark contributing to approximately 47% of the total amount invested in 2011.


FIGURE 1 Cumulative Funding Instances, 2010 - Early 2015


Source: Roots Analysis


Total Amount Invested Showcases a Positive Trend

Since primitive times, investors have shared varied reasons and apprehensions regarding the future potential for different therapeutic areas and associated innovations in the pharmaceutical market. Regulatory assistance from the government, technological advancements, accreditations for the technologies via patents are amongst several of the reasons which have attracted the investments in these start-ups.


Figure 2 depicts the total amount invested in the start-ups during the last five years; 2014 was a great year with the amount of investments topping USD 3 billion in the 230 companies that we considered for this analysis (implying the actual amount invested was higher).



Figure 2 Funding Instances: Distribution by Total Amount Invested Annually (USD Million), 2010 – Early 2015


Source: Roots Analysis


Prevalent Types of Investments

Technological advancements, innovation driven development of therapeutics and treatment options has continuously moulded the pharmaceutical industry. Monetary assistance from angel investors, Venture Capitalists and crowd funding schemes from various organizations, along with regulatory assistance from various committees has paced the research and development for several ailments.


Every start-up company requires capital to initiate its business. The financing can be done in many ways. For the purposes of our analysis, we have classified investments done in start-ups into the following major classes.

  • Debt: The company takes a loan from a bank or a group of investors and is deemed to pay back the money with the interest irrespective of whether the company is in profit or not.
  • Grant: Grant is a type of loan or grant provided by various government agencies such as National Institute of Health, National Cancer Institute etc. This form of funding is one of the cheapest of all the available types.
  • Seed: Seed funding is a type of an early investment which is required by a start-up to get started. The amount of investment is small and is required by any company to manage the early expenses in setting up the company. It is a highly risky investment. In general, the amount is smaller and, in our sample dataset, ranged from as low as USD 0.1 million to USD 2 million. At the same time, the returns are considerably higher as the small investment generally translates into a high equity share.
  • Venture / Equity: It is a type of investment done by an investor or a group of Venture Capital investors. In lieu of the money invested, the Venture Capitalists acquire a share in the stocks (equity) of the company; the percentage equity share depends upon the value of the company at the time of investment. Through this type of funding, the companies can secure a large amount of money. Venture Capitalists make investment in the company with a growth horizon that stretches from a few years to as long as ten years or more.


There are multiple rounds of Venture Capital funding classified as Series A, Series B, Series C, Series D and so on. Series A is the first round of funding after seed capital. With the growth of the start-up, it requires additional capital; subsequent funding rounds are known as Series B, Series C and Series D. With each funding round, the value of the company grows and the investors have to pay a higher price for investing in the company. The rounds of investment create a hierarchy of investors on the basis of which they can claim the profit. Venture Capitalists obtain profit when the company goes public and sells its shares on a stock exchange or when the company gets acquired by another company.


Table 2 highlights the major type of investments, the number of instances of such investments and the total amount invested under each category. Figure 3 shows the distribution of the number of funding instances under each type of funding that are defined above. Venture Capitalists are the most active class of investors for the start-up biotech / pharmaceutical companies. Grants are also quite common in the industry.  In our analysis, we identified 68 such instances. Majority of grants are provided by institutes such as National Institute of Health and its affiliate organisations such as National Cancer Institute and National Institute on Drug Abuse.


TABLE 2 Types of Funding Instances, 2010 -Early 2015



Source: Roots Analysis



FIGURE 3 Funding Instances: Distribution by Type, 2010 - Early 2015




Source: Roots Analysis



FIGURE 4 Funding Instances: Distributionby Total Amount Invested in each Type of Venture Capital, 2010 - Early 2015 (USD Million)


Source: Roots Analysis


Start-ups also raise money from debt financing these days; as is evident from the figure, 9% of the total types of funding instances in our dataset represented debt financing.


Venture Capital Investment: Distribution by Stage of Investment

The total venture capital funding amounted to USD 7.2 billion (Figure 4). This accounted for ~70% the total investment funding. About 26% of this amount (USD 2.3 billion) was invested as Series A funding. Next in line was Series B funding with the amount totalling over USD 2.2 billion. As expected, the amount invested went down from Series A to Series E.


Distribution by Average Amount Invested by Type

Figure 5 highlights that the average amount invested was highest in the ‘Other Equity’ category (USD 48.5 million). The amount invested under this category varied from as low as USD 1.3 million invested in Applied BioCode (which works on analysis for Molecular and Protein testing) in 2012to USD 450 million, a private equity investment in Moderna Therapeutics in 2015 by Wellington Management, Viking Global Investors, RA Capital Management.


In case of ‘Series C’ funding, the average amount stood out to be USD 38.3 million. The amount invested varied from USD 2 million invested in Calithera Biosciencesin 2012 by Advanced Technology Ventures, Delphi Ventures, Morgenthaler Ventures for  Phase 1 clinical trials in patients with advanced solid and hematologicaltumors to USD 150 million invested in Valeritas in 2011 by MPM Capital, Pitango Venture Capital, Abingworth, Advanced Technology Ventures, ONSET Ventures, HLM Venture Partners, Agate Medical Investments, CHL Medical Partners and Kaiser Permanente Ventures to commercialise a disposable insulin device.


Concluding Remarks

The industry is witnessing the evolution of several new approaches such as gene therapy, stem cell therapy, high resolution medical devices, advanced sequencing methods etc. As a result of the recent technological advancements registered in the life sciences sector, investors have shown immense faith on the research driven start-up companies. Over time, these start-ups have entered into the process of drug development. These firms are coming up with new and early clinical outcomes by partnering with research institutes and experts from academic sector. The innovation in medical devices has also attracted investors all over the globe.


FIGURE 5 Funding Instances: Distribution by Range of Amount Invested by Type of Funding (USD Million)



Source: Roots Analysis


We expect the market to witness strong growth over the coming decade with the launch of several new innovative therapies presently undergoing their pivotal trials. Owing to the highly responsive and dynamic nature of the market, the market is expected to evolve steadily. The robust and broad pipeline provides all the active players an opportunity to contribute effectively. It is important to mention that it may be a bit too early to predict the success of some of the newer technologies / products in early stage development.


Despite the associated challenges, we are quite optimistic about the enormous promise which resides within the market. The anticipated success of some of the upcoming approaches shall prove to be a harbinger for emerging players and a strong impetus to the development pace of the other pharmaceutical giants. Investment from Venture Capitalists and other strategic stakeholders will continue to act as the key enabler.


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