Extending private runways

How VCs plan to deploy bolus of new life sciences funds from LPs

While the private biotech sector is seeing a serious influx of new venture capital, investors say not to expect a corresponding increase in the amount of new company formations.

According to BioCentury’s BCIQ database, since the start of 2015, VCs who invest in life sciences have raised more than $21.1 billion in at least 69 funds, including at least $14.7 billion earmarked for therapeutics, diagnostics and medical devices.

BioCentury analyzed how VCs plan to deploy funds that closed at $200 million or more. These funds accounted for $18.1 billion of the global total, with at least $12.6 billion allocated specifically for investments in therapeutics, diagnostics and/or devices.

More than two-thirds of the funds that have disclosed targets for stage of development will flow into early stage companies. However, newco formations are expected to remain relatively flat due to constraints including the numbers of VCs who do de novo company formation, and seasoned entrepreneurs to steer start-ups.

Rather than funding greater numbers of companies, the VCs told BioCentury they expect to invest more in developing pharma-ready data sets, and in keeping portfolio companies capitalized for a longer time as the IPO climate cools and investors rely more heavily on trade sales as an endgame.

“The hard work of new company formation doesn’t change with money in your pocket.”

Andrew Schwab, 5AM

Going forward, it also looks like European biotechs may see an uptick in their share of VC funding compared with U.S. companies.

Out of at least $5.9 billion allocated for private companies, 72% is earmarked for U.S. investments vs. 28% for European, which would represent a high-water mark for EU companies in recent years.

According to BioCentury’s 2016

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