Silicon Valley law firm Cooley recently reported that “298 disclosed venture capital financings for Q3 2022, representing $8.1 billion in invested capital, represent a downward trend for both metrics and the lowest for both since Q4 2019.
According to the firm, deal volume, dollar volume and funding volume for life sciences companies continued to decline in Q3 2022 compared to Q2 2022 and 2021.
Yet, it was November that US bank JPMorgan chose to announce the launch of its healthcare venture capital practice, which will invest in early-stage to growth-stage companies in the space.
JPMorgan’s announcement came in the words of Robert Mittendorff, MD, general partner and head of healthcare at B Capital: “Public market biotechs have fallen sharply as interest rates rise and the focus on near-term development outweighs long-term prospects.” Timing results and approvals.
Mittendorff is not alone in this way. Six active biotech investors we recently surveyed told us that the macro environment definitely has a big impact on deal flow, valuations and M&A in biotech.
Where does that leave private biotech? Mittendorff said startups in the space are looking to diversify their assets, partner with strategies for second or third assets, and evaluate the structure of distributed financing to reach their fundraising goals.
However, appetite for Big Pharma M&A is not as strong as people expected, said Shak Vaida, principal at Lux Capital.
“The broader capital markets predict high acquisition interest in high-end pharma companies due to inflated valuations, but in practice appear to prefer partnerships and royalty deals for late-stage programs and corporate VCs as tools for early-stage engagement,” he said.
This isn’t necessarily bad news for venture capitalists who take advantage of opportunities others may not see. Mittendorff, for example, says that he and his B Capital colleagues “view market sentiment as overly negative.”
Among the opportunities biotech VCs see, the involvement of an AI component is more and more common. “Everywhere I see AI in Pain is amazing,” James Coates, principal of Decisive Point Health and Human Performance, told TechCrunch.
You’ve probably heard of AI being involved in drug discovery, but there’s more, says Sarah Guo, founder of Conviction.
“Over the past few years we have seen tremendous progress in AI models for protein folding and docking – key scientific problems. But looking at the business side, there are also opportunities to leverage data and smart software workflows to increase efficiency and effectiveness across the board in healthcare: from diagnostics, telemedicine, clinical trials, patient engagement and physician decision making to the revenue cycle. “Management and claims process,” she said.
However, investors are working harder than they have in years, not just because of Theranos. For example, Franck Lescure of Elaya Partners says that the company “has become increasingly concerned about climate and environmental issues, regardless of the project – it was already just ‘cool’.”
Among other trends, the worsening US-China relationship is having an impact on investors’ minds. “We’ve seen CFIUS influence some of the deals we’ve been involved in,” confirmed Francisco Dopazo, general partner at Humboldt Fund.
If U.S. sanctions on China extend to biotech, Dopazzo said, “the impact could range from financing (for example, companies cannot use strong and strategic Chinese capital) and scale (for example, access to sophisticated CROs more difficult) to business development and business operations (for example, business development agreements). less options). A short/medium term negative impact on the industry as a whole is evident.
Read the full survey here to learn more about how investors are thinking about the implications of US sanctions on China, what types of capital should be considered from state-owned startups, how to bring these investors in, and more.
