Non-European venture investment in European biotech is on the rise

BioCentury breaks down three years of venture financings in Europe by investor geography

By Amanda micklus, senior biopharma analyst

August 14, 2020 5:20 PM UTC

European biotechs are seeing more participation by non-European investors in venture rounds than they’ve seen in the last three years, and the median size of the financings has outstripped solely domestic rounds.

BioCentury analyzed 133 European venture financings between Jan. 1, 2017 and June 30, 2020 that raised at least $25 million and found a steep rise in cross-border interest in the first half of 2020.

The question is whether the increased activity is despite or because of the pandemic, and if it will continue in the new normal left behind after the pandemic passes.

COVID-19 has forced dealmaking negotiations to move from in-person meetings at company headquarters and conferences to online calls. But biotechs are adapting quickly, and a recent survey conducted by BioCentury and investment bank PJT Partners found that 80% of companies expect a mostly virtual due diligence process going forward (see “Sweet Spots and Vulnerabilities for Dealmaking in COVID Era”).

Venture financings may follow the same path.

Non-European investors are clearly seeing opportunities in European biotech, and a shift to a more virtual dealmaking process could lower barriers to investing in those opportunities, leveling the global playing field in terms of competition for venture capital.

Innovation hotspots within Europe driving progress in new modalities, including cell and gene therapies and microbiome technologies, could help fuel continued interest from abroad (see “Europe’s Hotspots of Innovation”).

European venture rounds by the numbers

Cross-border venture financings — defined in BioCentury’s analysis as those containing at least one non-European investor — have consistently been more numerous than domestic-only financings in Europe, but the last six months have seen cross-border rounds pull farther ahead.

In 1H20, European biotechs raised 22 venture financings with participation from outside Europe. That’s the highest six-month number in the last three and a half years, and double the volume in 1H17, the beginning of the analysis.

With the exception of a small bump in 2018, domestic-only venture rounds were flat during the period, consistently numbering four or five in any six-month window.

Cross-border financings now represent 82% of all venture rounds in Europe, up from 73% in 1H17, which means there are 4.4x venture financings with cross-border support for every one domestic-only round.

The median amount raised in cross-border venture financings has also pulled ahead of domestic-only rounds in Europe.

In 1H17, the two types of rounds had almost the same median, and neither was substantially larger than the other until the end of 2019, when domestic-only financings started raising less and cross-border financings started raising more.

In 1H20, domestic financings raised a median of $28 million, the lowest number in any six-month period during the analysis; whereas cross-border financings raised a median of $53 million.

The medians in the last two halves were driven up by eight financings worth over $100 million. The prior five halves combined only saw four financings of that size.

ADC Therapeutics S.A. (NYSE:ADCT) takes the prize for the biggest cross-border round, a $303 million Series E financing in 2H19. The fund-raising came after FDA lifted a partial clinical hold on a pivotal Phase II trial of lead candidate camidanlumab tesirine in relapsed or refractory Hodgkin lymphoma. Taking advantage of the strong U.S. public market for biotechs, ADC went on to raise $232.7 million in its IPO in May (see “As Biotech IPO Pace Quickens, ADC Therapeutics Garners Largest Postmoney Valuation of the Year”).

CureVac N.V. (NASDAQ:CVAC) pulled in the highest domestic round at $337 million. The German company is one of several players developing an mRNA vaccine for COVID-19, and was the center of controversy due to reporting that the U.S. was trying to get exclusive access (see “Amid Concerns of COVID-19 Vaccine Nationalism, Germany Takes €300M Stake in CureVac”).

On Friday, CureVac raised $213 million in an IPO that valued the company at $2.8 billion, plus an additional $118 million in a private placement.

U.S. investors go-to source outside of Europe

Outside of their home geography, European companies call on U.S. investors more than those in any other region.

Over half the venture rounds in the three-and-a-half year period (80 transactions, 60%) involved at least one U.S. investor. That’s almost three times more than rounds that included a Chinese investor, the next largest source of venture funding for European companies (30 transactions, 22%).

Eight percent of the financings (11 transactions) included an Asian investor outside of China, and there was minimal participation from investors in Canada; the Middle East and North Africa (MENA); and the U.S. and British Virgin Islands.

The 20 transactions in 1H20 that included a U.S. investor nearly reached the full-year 2019 total of 21.

The first half of 2020 also saw eight cross-border financings involving Chinese investors, exceeding the full-year totals of both 2017 and 2019.

Most active investors

LSP topped the list of European venture investors in European biotechs at 16 financings during the three and half years, with another thirteen European investors participating at least six rounds.

OrbiMed was the most active U.S. investor at 12 financings, almost double the seven rounds of Redmile Group, which came in second. At least nine U.S.-headquartered investors participated in five or more European venture financings.

Morningside led Chinese investors with four European venture financings.

In the APAC region outside of China, KB Investment, Korea Investment Partners and Mirae Asset Venture Investment each invested in two European financings, while several other investors participated in one.

On the receiving end, the U.K. stands out for attracting the most venture funding from outside Europe at 33 financings, almost triple that of Switzerland, which came in second with 11.

Sweet spots for cross-border and domestic financings

Companies starting out and raising their first venture round received investment mainly from domestic investors.

An analysis of the financings by the stage of the company’s lead assets shows preclinical companies are a sweet spot for European investors, representing 42% of domestic-only rounds, the largest fraction. Most of those preclinical companies raised series A rounds.

By contrast, Phase II companies accounted for the biggest proportion of cross-border rounds at 29%, with preclinical companies accounting for 24%.

Series B rounds saw by far the most interest from cross-border investors, at 44 financings (55%).

The findings suggest geographically distant investors may have a lower risk tolerance than those close to home.

Local investors may also have more insight into early-stage discoveries spinning out of European universities. Oxford Sciences Innovation, for example, has a blanket agreement with University of Oxford that gives it automatic non-disclosure agreements with every researcher at the university (see “OSI Leverages Foundational Deal with Oxford to Build Portfolio”).

BioCentury analyzed 133 European venture financings between Jan. 1, 2017 and June 30, 2020 that raised at least $25 million and found a steep rise in cross-border interest in the first half of 2020...

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