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The Biotech Startup Class of 2013: Don’t Worry, It’s a Short List

Xconomy National — 

[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.

Bruce Booth. Photos by KeithSpiro, courtesy of Kendall PRess.

Bruce Booth. Photos by KeithSpiro, courtesy of Kendall PRess.

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 ltimmerman@xconomy.com 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
Sideris Pharmaceuticals
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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  • Barbara Nelsen

    Interesting article, but as you point out early-funding is now the domain of alternative investors, philanthropics, non-profits and super-angels. The list of exciting new biopharma companies is long, if you look to who has raised greater than $5M outside of VCs. In 2012, angels invested a total of $1.1 billion in 783 deals (primarily in “first fundings”), with 27% of that invested in the healthcare/life sciences sector.
    National chapters, larger investment pools, sophisticated investment
    strategies, syndications with other angel funds, and an integrated
    single-source application has made it significantly easier for angels to provide funding at higher levels than historically done, and through multiple rounds of financing. In addition, they are syndicating other investor categories. It’s time to rethink how we access the landscape of new and noteworthy biotechs.

  • Carlos Danger

    I think the title of the article should more aptly be “The Biotech Startup Class of 2013: Worry, it’s a short list”.

  • Carlos — I do think it’s a concern that so few high-impact startups are getting started. I hope it’s just a down cycle, because if it’s a long-term trend, then the whole industry will be in bigger trouble than it already is.

    Barbara — many of these companies listed above have gotten money from angels as well as VCs. Can you share some of the exciting first-time biotech financings of $5m+ in 2013 that I’ve overlooked? I’m happy to update the list if you have more names to add.

  • @ben_lack

    You do realize your annualized rate is well (136) is well within the peak range, right?

  • Ben — No, the annualized number of first-time financings is not even close to the peak range. The numbers from NVCA/Thomson Reuters show we are on track to see about half as many first time financings as in the peak years of 2006-2007. Those peak years saw 270-275 first time life science financings, and we are on track for roughly 130 first-time financings this year.

  • This dynamic bodes well for future returns in early stage venture creation going forward.

  • Muni

    You Said “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”.

    My reply
    “What you define “Newsworthy” seems to me not at all that worthy. If you have that much money, there would be millions of start ups in Biotech or any other field. The most notorious problem with starting a business of any kind is money, and that is even more harder for Biotechnology because one needs a lot more money. To start a BioTech with $5 Million in hand is pretty lame and unrealistic, who will have that much money. Most banks are run by thugs and they do even lend small amount like $100-250K, you are talking about 5 Million. I can guarantee you that most of those so called drug companies started with small amount and with their hard work and steady build up brought in more money. What is news worthy is a solid plan and good people behind the idea, the rest can be worked in a timely fashion, if money is your criteria for a small business/start up or a Biotech start up, there would be no new companies for another 100 years.

    I can guarantee you that with 1 Million, I can bring up one of the finest Biotech companies that could grow into challenge a larger multi million companies……that would be more news worthy. Writer like you must project realistic and optimistic views, and write to those thuggish banks like Wells Fargo, Chase and others to lend to talented people, things will change and our nation can improve from this economic and other disabilities that is facing now”.

    • Muni

      I meant “they do not even lend”
      (not do lend)