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Can Biotech Sustain the Venture Capital Investment Surge?

     

In 2017, the biotech sector experienced over $9.3 billion in venture funding in 471 deals, including several mega-deals such as Unity Biotechnology and ADC Therapeutics. While 2017 was, by far, one of the best years for biotech venture funding since 2010, the question is can that momentum continue through 2018?

According to a report by Silicon Valley Bank, by mid year, venture fundraising in healthcare had already reached $4.5 billion, and was on pace to match 2017. In addition, research and advisory firm Grand View Research predicts that the global biotechnology market will grow to be worth $727 billion by 2025.

In this blog, we’ll discuss the factors that were behind the 2017 surge and how they can be used to predict how the 2018 numbers will play out.

2017 in biotech investing

One element about the biotech surge that’s worthy of discussion is the fact that deals were larger but also fewer. Since 2017, only 17 startups received $200 million or more in a single round of VC funding. Yet multiple companies were able to achieve this in the third quarter of 2017 alone, including 23andMe’s $250 million and WuXi NextCODE’s $240 million, both in September.

Several biotech firms have attracted interest and buzz from individuals and companies well outside the space. For example, Amazon founder and CEO Jeff Bezos and Paypal co-founder Peter Thiel are backing Unity Biotechnology, which has raised more than $300 million to work on anti-aging treatments for diseases such as osteoarthritis.

Also in 2017, VC firm Atlas Venture established Fund XI, a new $350 million fund for investing in early-stage biotech startups. According to Atlas, Fund XI was “the fastest and most oversubscribed effort we’ve had in over 15 years.”

The good news for investors is that the strong biotech market conditions of 2017 have continued into the next year. Led by competent researchers and executives coming from both academia and industry, biotech startups continue to break scientific ground as they explore new avenues and therapies.

Why is biotech so big right now?

Despite the downfall of Theranos, the conviction of Martin Shkreli, and persistent concerns about drug prices, the fundamentals of the biotech industry remain strong. Some of the motivating factors include the aging population, the prevalence of chronic conditions such as cancer and obesity, and the interest in personalized treatments such as specialized drugs and gene therapy.

In addition, the rise of artificial intelligence and machine learning techniques is expected to drastically transform biomedical research & development. Only 5 percent of experimental drugs will ever make it to market— a meager success rate for a process that takes an average of 10 years and $2.6 billion.

By using AI to reduce the amount of trial and error involved in the research process, many biotech companies are hoping to speed up clinical trials and explore new treatment options with less money and effort.

While it’s impossible to say whether the frenzied pace of investment in 2017 will continue at quite the same heights, the trendlines of the biotech industry look strong. Promising scientific developments such as immunotherapy treatments for cancer will likely ensure that biotech investment remains strong into the foreseeable future.

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