On May 24, 2016, the Biotechnology Innovation Organization (BIO) published a study, “Emerging Therapeutic Company Investment and Deal Trends,” which collects ten years of data to identify trends affecting “emerging therapeutic companies” (“ETCs”). ETCs are companies that are (1) developing therapeutics with a lead drug in research and development (“R&D”), or (2) have a drug on the market, but have less than $1 billion in sales at the time of the transaction.
The study focuses on venture capital, initial public offerings (“IPOs”), follow-on public offerings, licensing, and acquisitions.
Venture Capital Trends
Venture funding reached a record high of $6.8 billion during 2015, which included the largest biotech venture capital deal on record, raising $446 million. The study also found that Series A financing nearly doubled from 2014 to 2015. The study found that nearly 70% of venture capital funding in 2015 went to early-stage companies and nearly $2 billion was invested in oncology companies. Although oncology companies were successful in obtaining venture capital funding, the study found that funding was inconsistent across disease areas, as companies in certain disease areas have not rebounded well since the financial crisis.
The study found that IPOs for ETCs were strong during 2015, with 39 companies going public. The study found that a positive effect of the JOBS Act has been the increase in the average amount raised per IPO for R&D stage companies from $68 million in 2012 to $90 million in 2015. Another trend that the study identified was that the clinical development stage that ETCs are in at the time of their IPOs has shifted in recent years. In the years approaching the financial crisis, there were no Preclinical or Phase I company IPOs in the United States, yet during 2012 to 2015, there were 34 such IPOs. According to the study, this shift in IPO activity may represent an increased preference for investing in early-stage companies. When considering the disease type for companies that have obtained IPO financing, the study noted that neurology companies raised $1.05 billion, the highest amount of capital across disease type.
The study also found that: (1) during 2014 to 2015, follow-on public offerings by ETCs increased from $8.9 billion to $16.1 billion; and (2) licensing proved to be a critical aspect of capital raising (reaching a record high of $7.1 billion) and an alternative investment strategy to acquisitions, as 38% of all ETCs partnered during 2015.
A copy of the study is available at: https://www.bio.org/sites/default/files/BIO_Emerging_Therapeutic_Company_Report_2006_2015_Final.pdf