Biotech startup funding is better than you think, and funding growth could be here for the long term. No one can blame early stage biotech startups grumbling about the difficulties getting funded, especially when their challenges are contrasted with software startups. Billion dollar valuations for software companies with no revenue have given way to deca billion dollar companies with no revenue. Coupled with ongoing drumbeat of relentless cutting and restructuring R& at almost all Big Pharma companies, it’s easy to wallow in a pessimistic swamp regarding early stage funding for life science startups, except for one thing: Startup funding for Biotechs is blowing up. Not only that, the long-term trend points to continued growth in early stage life science investment. So what’s changed?
First Things First: Big Pharma R & D Long Term Decline
Part of the misperception regarding early stage startup (Seed, Series A and B) funding in decline is from long term ongoing declines in R&D investment from Big Pharma. Looking at Big Pharma R&D investment on income statements can be misleading, because R&D frequently looks like its growing, except when you consider that what you are looking at may be a post-merger income statement. Sure the R&D may have grown 10%, but the combined R&D of two entities may have declined 40%. The graph above illustrates how Pfizer's acquisitions over time should have made a 200,000 person company, instead of just 77,000. So R&D for Pfizer has surely grown, but the aggregate investment from all the acquired companies surely has shrunk.
Long Term Growth Trend for Early Stage Life Science Companies: Here to Stay?
In its 2015 report on biotechnology funding, PWC reported that biotechnology funding in the 4th quarter of 2014 was the HIGHEST recorded since they started tracking data in 1995 (here). Some of the highlights look like this:
“For the full year 2014, life sciences investments reached $8.6 billion, a 29% increase in value over the $6.7 billion total for 2013."
"For the 4th quarter of 2014, life sciences investment increased 62% to $2.75 billion in the fourth quarter of 2014.”
Contrary to what entrepreneurs may feel, or what investors may think - startup funding for Life Science companies is red hot.
Long-term funding for Early Stage Life Science Companies Poised for Growth. Here's Why.
In the white paper titled "Big Pharma R&D Trends Down: Paradoxically, Early Stage Life Science Trends Up", I take this recent trend and discuss the interrelated paradoxes and connections between, long-term declines in Big Pharma R & D investment, Long term increases in Big Pharma Venture and Corporate Development investment, the emerging ascendancy of Chinese investment in early stage Life Science companies, and finally the growing importance of the public sector scientific research on high value but high risk discoveries. What it all seems to point to is that while Big Pharma R & D investment will continue its long-term decline, collective investments in early stage Life Science startups will continue to grow, as a new cast of investors made of up VCs collaborating with Corporate VC arms, and Chinese investors provide the capital needed for the most promising therapeutics going forward.