Pharmas learn their A, B, seeds

Analyzing the surge of newco formations involving corporate VCs

Having stepped in to fill the venture funding void after the financial crisis, corporate VCs are emerging as financing engines for new company formation. Driven largely by the flood of interest in immuno-oncology, pharmas are now more active than ever before in fostering the generation of new start-ups.

According to BioCentury’s analysis of seed and A round investors since 2000, the role of corporate investors in newco formation has surged in the past three years, with 2016 marking the highest level yet. From 2014-16, pharma VCs joined seed or series A rounds for 26-31 newcos per year, accounting for up to 30% of the total number of companies raising seed or series A funding during the period, compared with 12-15 at about 14-18% for the prior three years (see “Corporate Backing”).

Figure: Corporate backing

Since the financial crisis in 2008, early stage investments in life science companies by corporate venture arms have risen, with a notable surge in the last three years.

The top panel shows the number of biotech companies that received a seed or series A investment by a pharma company or its corporate venture arm each year since 2000.

The bottom panel shows the percentage of the total number of companies that received seed or series A funding involving a corporate VC, by year.

In 2013, only 15 companies had early stage backing from a corporate VC, accounting for just 13.9% of the total companies that received early stage investments. The number jumped to 26 in 2014 and 27 in 2015, accounting for over 22% each year, and rose to 31 and 29.5% of all seed- and series A-funded companies last year. Source: BCIQ: BioCentury Online Intelligence

“In Boston, I can’t think of a new seed in therapeutics without at least one corporate venture fund involved. Most corporate venture funds play a huge role in start-ups,” said Jens Eckstein, president of GlaxoSmithKline plc’s venture arm SR One.

Novartis AG, Eli Lilly and Co. and Pfizer Inc. have been the most active, participating in 25, 19 and 17, respectively, of the seed and series A rounds documented in BioCentury’s BCIQ database. While investments by Novartis and Lilly are heavily skewed toward cancer, and to a lesser extent, neurology, Pfizer’s investments span the gamut from diagnostics to rare diseases to immuno-oncology.

The upswing

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