[Updated: 12:45 pm PT 12/13/13] We’ve heard a lot this year about the IPO boom for biotech companies. Even after a few high-profile blowups (Ariad, Sarepta), the public biotech stock indexes are still outperforming the Nasdaq Composite Index and S&P 500. Some biotechs have been acquired for megabucks (Onyx, ViroPharma). We’ve heard about another biotech bubble in the making.
Normally, you’d expect all that wealth creation and associated excitement to ripple across the biotech industry and stimulate all kinds of exciting new biotech startups. You’d think lots of venture capitalists, flush from the latest happy trip to the Nasdaq casino, would be itching to throw the house money into the best new crop of biotech startups.
But you would be wrong.
The data aren’t final yet for this year, but it’s safe to say we are living in the stingiest funding cycle for first-time biotech financings in almost two decades. There were only 102 first-time financings of life sciences companies through the first nine months of 2013, the lowest amount since 1996, according to data from Thomson Reuters that’s used for the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association. If you subtract out one big private equity deal for a life sciences service provider—a $150 million investment in Bethesda, MD-based Precision for Medicine—then just $467 million went into first-time biotech financings through the first nine months of the year.
This trend, of course, has been visible for a few years now, as the biotech venture capital business goes through a historic shrinkage. Even with the emergence of crowdfunding, corporate venture capital, and a new breed of businesslike philanthropies, there’s still a glaring lack of truly exciting, newsworthy, swing-for-the-fence biotech startups being created today.
As I did last year, I spent some time this week reviewing databases and asking a dozen VCs from the U.S. and Europe to come up with a list of the important biotech startups of 2013. For the purpose of this exercise, I defined a “newsworthy” biotech startup as one that has a big idea, a credible management team, and one that got at least $5 million from a first-time financing in 2013. I set $5 million as the cutoff, because it weeds out a lot of poseurs, yet it sets a pretty low bar for inclusion. It takes at least $5 million to do an even halfway substantive manufacturing run for a new protein drug candidate to begin clinical trials. It’s not much money.
Why should anyone care about these little companies that no one has ever heard of? Because biotech needs to keep churning out new companies every year. Players disappear all the time, whether it’s because of failure or success (acquisition). New startups are often the ones free to take on the daring ideas, the ones that can truly advance medicine. Whenever someone e-mails me with “Hey, here’s a new company with star scientific entrepreneur XYZ that just raised a $30 million Series A to do the next big thing in cancer/Alzheimer’s/genomic tools/whatever,” that usually makes me drop what I’m doing to stop and listen. If the industry can barely pop out a handful of these kind of companies each year, then we’re all going to have to start looking to Big Pharma/Big Biotech again as the source for innovation—even though they’ve been hoping little biotech would solve the innovation problem the past 15 years.
So why is this happening? There are fewer active VC firms now than there were five years ago, as many have failed to raise new funds to keep going. Many big institutional investors feel that the rewards of biotech (which aren’t as big as an investment in the next Facebook of Twitter) don’t justify the risk. Yet, if you talk to scientists, pharma leaders, and venture capitalists, they almost all agree that there’s never been a better moment to invest in biotech.
Last week, I shared my (short) list of newsworthy biotechs from 2013 with Bruce Booth, a partner at Atlas Venture, and asked him why he thinks so few big-time biotech startups are being created. Here’s what he said via e-mail.
At its peak in the mid-2000’s, 120-150 new biotechs were being formed each year. Now it’s closer to 80-100. What’s the “right” number to support a healthy ecosystem? Is there really one transformational idea every two days around which to create a new biotech? Part of the decline is a reduction in the number of ‘spec pharm’ reformulation plays. We see far fewer of those. Your list underpins that point – many of these are biotechs working on innovative new therapies not incrementalist innovations. That’s the silver lining on the shorter list. One can argue on both sides about what the right number is to support a sustainable biotech industry, but we certainly believe now is a fantastic time to be starting new companies: the supply of high impact ideas – the substrate that powers up new startups – is as strong as ever, and the demand for new, novel medicines from both Pharma, and surprisingly the public markets, continues to outstrip the supply. This dynamic bodes well for future returns in early stage venture creation going forward.
It should be noted that a few of these companies in the list below may have been operating on shoestring grants here or there before this year, but appear to have gotten their first financing to pursue their goals at full throttle in 2013. Some of these companies are trying to remain in stealth mode, so I’ve done my best to describe what they do in simple blurbs from the Thomson Reuters dataset, the company websites, or from our own Xconomy reporting. Some companies crowed about large financing amounts in press releases, but appear to have raised much smaller tranches of financing when I checked their filings in the SEC’s EDGAR database.
And to be sure, I am hearing promises that the list will grow with a few more newsworthy biotech startup financings before Christmas. If these things materialize, I will update this chart in coming weeks so that it can serve as a reference for all of 2013.
Lastly, I should note that when I scrubbed through the Thomson Reuters data on first-time financings, I was struck by how inflated the reported number of 102 first-time financings appears to be. Several of the companies counted shouldn’t qualify for a variety of reasons. Either it wasn’t their first financing, the first financing was much smaller than reported, or the company isn’t even a true life sciences entity. My review eliminated seven of the 32 biggest financings (22 percent), and I didn’t even bother to go really deep into the weeds of the $1 million financings.
With that, here are the 45 members of the “newsworthy” biotech startup class of 2013. As always, if I’ve overlooked any companies that meet the selection criteria, please let me know at firstname.lastname@example.org or @ldtimmerman on Twitter and I’ll be sure to update the chart.
|Company||Location||What does it do?||Who invested?||Amount||Source|
|Precision for Medicine||Bethesda, MD||Drug development services||J.H. Whitney, Oak Investment Partners||$150m||Thomson Reuters|
|Juno Therapeutics||Seattle||Cancer immunotherapy||Arch Venture Partners, Alaska Permanent Fund||$120m||Xconomy reporting (updated 12/4/13)|
|Spark Therapeutics||Philadelphia||Gene Therapy||Children’s Hospital of Philadelphia||$50m||Press release (updated 12/13/13)|
|Jounce Therapeutics||Cambridge, MA||Cancer immunotherapy||Third Rock Ventures||$47m (likely smaller b||Thomson Reuters|
|Editas Medicine||Cambridge, MA||Gene editing||Polaris Partners, Third Rock Ventures, Flagship Ventures||$43m||Xconomy reporting (11/25/13)|
|GenSight Biologics||Paris, France||Gene therapy for ophthalmology||Novartis Venture Fund, Abingworth, Versant Ventures, Index Ventures||$41.3m||press release|
|ObsEva||Geneva, Switzerland||Drugs for pre-term labor||Sofinnova Partners, Sofinnova Ventures, Novo A/S, MS Ventures||$34.5m||press release|
|Audentes Therapeutics||San Francisco||Gene therapy for rare diseases||OrbiMed Advisors, 5AM Ventures, Versant Ventures||$30m||Thomson Reuters|
|Seragon Pharmaceuticals||San Diego||Cancer drugs||venBio, Topspin Fund, Aisling Capital, OrbiMed Advisors, The Column Group||$30m||Thomson Reuters|
|Pulmocide||London||Inhaled therapies for respiratory diseases||Imperial Innovations, SV Life Sciences, Fidelity Biosciences, Johnson & Johnson||$27.4m||BioCentury|
|Cydan||Cambridge, MA||Orphan drug startups||NEA, Pfizer Venture Investments, Alexandria Venture Investments, Lundbeckfond Ventures, Bay City Capital||$26m||press release|
|Envisia Therapeutics||Research Triangle Park, NC||Polymer drug delivery||Canaan Partners, NEA, Pappas Ventures, Morningside Technology Ventures, Wakefield Group.||$25m||press release|
|Apexigen||Burlingame, CA||Antibody drug development for cancer, inflammation||Amkey Ventures, WSR Capital, China Development Industrial Bank, Themes Investment Partners, and Sycamore Ventures.||$20m||Xconomy reporting (updated 12:45 pm PT)|
|Armo Therapeutics||Redwood City, CAs||Cancer immunotherapy, fibrosis, cardiovascular disease||Kleiner Perkins Caufield & Byers, OrbiMed Advisors, DAG Ventures||$20m||Xconomy reporting 11/25/13)|
|BioClin Therapeutics||San Ramon, CA||Antibody drug for a rare genetic orphan disease (not disclosed) and cancer||Novo A/S||$20m||Xconomy reporting (updated 12:30 pm PT 11/19)|
|Allecra Therapeutics||Lorrach, Germany||Antibiotics||Edmond de Rothschild Investment Partners, Forbion Capital Partners, EMBL Ventures||$19.6m||press release|
|Solstice Biologics||San Francisco||RNA interference||venBio, Aeris Capital||$18m||press release|
|Effector Therapeutics||San Diego||Cancer drugs||U.S. Venture Partners, Abingworth, Novartis Venture Funds, SR One, Astellas Venture Management, Osage University Partners and Mission Bay Capital||$17.4m (press release says $45m)||Thomson Reuters|
||Boston||Iron-chelating drug||MPM Capital, Osage University Partners, Hatteras Venture Partners, Novartis||$17m||SEC filing (updated 10:45 am ET)|
|Allergen Research Corp.||San Mateo, CA||Oral immunotherapy for peanet allergies||Longitude Capital, Food Allergy Research and Education||$17m||press release|
|Biodesy||Burlingame, CA||Real-time analysis of protein function||5AM Ventures, Pfizer Venture Investments and Roche Venture Fund.||$15m||press release|
|Tacurion Pharma||New York||Drug for frequent urination at night||InterWest Partners, Sutter Hill Ventures and Astellas Venture Management||$15m||Thomson Reuters|
|NextCode Health||Cambridge, MA||Genomic data interpretation/diagnosis||Arch Venture Partners, Polaris Partners||$15m||press release|
|Arvinas||New Haven, CT||Drug development||Canaan Partners, 5AM Ventures, Connecticut Innovations and Elm Street Ventures||$15m||press release|
|Labrys Biologics||San Mateo, CA||Antibody drug for migraines||venBio, Canaan Partners, InterWest Partners, and Sofinnova Ventures.||$14.6m (Jan. 3 press release said $31m)||SEC filing|
|Fractyl Laboratories||Waltham, MA||Medical devices for chronic diseases||Bessemer Venture Partners, Domain Associates||$14.4m||Thomson Reuters|
|Amphivena Therapeutics||Heidelberg, Germany||Drugs for blood cancers||MPM Capital,Aeris Capital, Affimed AG.||$14m||Thomson Reuters|
|X01||Cambridge, UK||Anticoagulant therapy||Index Ventures||$11m||press release|
|Middle Peak Medical||Palo Alto, CA||Mitral valve heart device||Wellington Partners, Seventure Partners, High-Tech Gruenderfonds, BioMedInvest II, Edwards LifeSciences.||$11m||press release|
|Scanadu||Mountain View, CA||Personal health electronics/equipping smartphones for health monitoring||Relay Ventures, Tony Hsieh’s VegasTechFund, Jerry Yang’s AME Cloud Ventures||$10.5m||press release|
|Calorics Pharmaceuticals||Waltham, MA||Yeast-based drug discovery for calorie-restriction/diseases of aging||Polaris Partners, undisclosed investor||$10.2m||Thomson Reuters|
|CoStim Pharmaceuticals||Boston||Immunotherapy/antibody drugs for checkpoint inhibition||Not disclosed. But board has members from Atlas Venture, MPM Capital, J&J Development Corp.||$10m||SEC filing|
|Syros Pharmaceuticals||Watertown, MA||Cancer drugs||Arch Venture Partners, Flagship Ventures||$10m||SEC filing|
|Loxo Oncology||New York||Cancer drugs||Aisling Capital, OrbiMed Advisors and an undisclosed investor.||$10m||Thomson Reuters|
|Sitari Pharmaceuticals||San Diego||Drugs for celiac disease||Avalon Ventures, GlaxoSmithKline||$10m||press release|
|Channel Medsystems||San Francisco||Medical technology for heavy menstrual bleeding||Aperture Venture Partners LLC, Boston Scientific, DFJ Incube Ventures, Scientific Health Development Ltd,Undisclosed Investor||$9.8m||Thomson Reuters|
|ImmunGene||Thousand Oaks, CA||Cancer drugs||Ally Bridge Group||$9m||press release|
|ScioDerm||Raleigh, NC||Topical skin drug||Morgenthaler Ventures, Technology Partners||$9m||Thomson Reuters|
|InformedDNA||St. Petersburg, FL||Genetic counseling||MPM Capital, other undisclosed investors||$7.7m||Thomson Reuters|
|New Leaf Symbiotics||St. Louis, MO||Plant bacteria-derived products||Rockport Capital, Open Prairie Ventures, Pangaea Ventures, and several individuals.||$7m||Thomson Reuters|
|Arcturus Therapeutics||San Diego||RNA interference||Individual investors||$6.3m||Xconomy reporting|
|Semnur Pharmaceuticals||Mountain View, CA||Non-opioid drugs for back pain||Not disclosed, but board has members from Vivo Capital, Canaan Partners, and Frazier Healthcare Ventures||$6m||SEC filing|
|Dimension Therapeutics||Cambridge, MA||Gene therapy for rare diseases||Fidelity Biosciences||Not disclosed, but more than $5m||Xconomy reporting|
|Alector||San Francisco||Alzheimer’s drugs||Polaris Partners, OrbiMed Advisors||Not disclosed, but more than $5m||Xconomy reporting|
|Sofie Biosciences||Culver City, CA||New PET imaging technology||Tata Industries, MRM Capital, Cycad Group.||$5m||press release|
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