The Few and the Proud: The Biotech Startup Class of 2012
[Updated: 3:35 pm PT, 12/3/12] Quick: Can you name three exciting biotech companies that got started, in your city, in 2012?
I can’t, as a citizen of Seattle. Chances are, no matter where you live in the U.S., and no matter how plugged-in you are into the industry, you can’t either.
This wasn’t supposed to be a trick question. When I crafted this story idea last week, I thought it might be hard for people outside of top-tier hubs like Boston and San Francisco to fill in the blanks. But when I circulated the question last week to 12 people who are extremely well-connected in five major U.S. biotech startup clusters, I got very little back in the way of substantive answers. The incomplete responses say everything you need to know about the barren landscape for biotech startups in 2012.
I’ve been mostly focused this year on the slow-motion train wreck occurring in life science venture capital. But that’s only part of the startup finance story, since this also has a huge effect on entrepreneurs. Good luck trying to find people who raised real money to get companies off the ground this year. There were only 15 first-time biotech financings nationally in the third quarter of 2012, which continues a year-long decline. The numbers seem to keep getting worse every time the National Venture Capital Association and PricewaterhouseCoopers send out their quarterly venture capital reports.
When I cast a broader net last week on Twitter, asking readers there to nominate exciting startups from 2012, I got quite a few answers. But most of those companies haven’t raised any significant investment money yet.
So, here’s what I found about the biotech startup class of 2012. After three days of hounding human sources, digging into industry databases, and doing various online searches, I came up with a list of more than 65 biotech startups. But many of these companies look more like startup company candidates rather than true growing enterprises with a chance of becoming newsmakers. So for the purpose of this exercise, I defined an “exciting” biotech startup as one that has a big idea, credible founders, and pulled in at least $5 million in a first-time financing in 2012.
Even in a world full of super-lean “virtual” companies, it still takes tens of millions of dollars to accomplish anything big in life sciences, so $5 million is really a pretty modest start. While there are plenty of ideas and smart people to go around, I counted only 30 companies in North America and the United Kingdom who raised that modest amount of dough to get started this year.
Any way you choose to look at it, there is so little money now being put into biotech startups that any rational person has to wonder where the new drugs, medical devices, and diagnostics are going to come from in the 2020s and beyond.
The year isn’t over yet, of course, and I don’t really know how this number compares to other years, but I do know from experience that I wrote about more startups than that for Xconomy even during the dark financial years of 2008 and 2009. This trend worries me. Biotech needs to keep creating a steady stream of new companies, because a certain number of players disappear from the scene every year, via acquisition or failure. New startup investments matter, because if they pan out, they could have big implications for patients and the future of medicine.
Now, you might also ask, where was the action? That’s equally disturbing. The proud biotech hub of San Diego, for example, can claim exactly zero members of the “big idea/big talent/big money” club, unless you stretch to count Thesan Pharmaceuticals just across the Orange County border in San Clemente, CA. Seattle, unless you bend the rules to include a deal from December 2011, also produced a big fat zero. Boston can count eight—Warp Drive Bio, Visterra, Annovation Biopharma, RaNA Therapeutics, Synchroneuron, Neurovance, Alcresta and Rs3 Bioscience. San Francisco, the world’s other top-tier biotech hub, can claim five. They are Global Blood Therapeutics, Myokardia, Cerephex, GeneWeave Biosciences, and Atreca. [Updated to include Atreca]
Before showing the list of the few and proud biotech startups of 2012, some caveats are in order. Databases on startups are notoriously incomplete, since many companies in their earliest days try to remain stealthy to avoid the scrutiny of the media and well-heeled competitors. There’s always the murky question of when a company really is “started.” Is it when key intellectual property gets created, or licensed to a company? Is it when the founding team starts working together full-time? Is it when the first Series A check arrives? The true answers can vary from company to company.
Since this list is incomplete, I’d like to ask you for your help in fleshing it out a bit more. If you know of a company that isn’t on this list, but meets the criteria above, send me a note at firstname.lastname@example.org and I’ll verify to see if it should be added. For the sake of the industry, and for the patients that are counting on new medical innovations, I hope there’s more startup action to report on in 2013.
Alcresta [Added: 9:30 am PT, 11/27/12]
San Francisco Bay Area