Last year, the pace of life science startup formation continued to increase. The latest buoyant figures add to an impressive run of prosperity in the private biotech sector. In nearly every possible metric, the sector has outperformed for two straight years. In 2015, private biotechs raised more money than ever before, demolishing the record set in 2014. They saw the most series A financing rounds closed in biotech's history. Not only did exits for investors remain robust with a slew of initial public offerings (IPOs), but also merger and acquisitions recycled money back to investors at unprecedented rates.

Credit: Ridge Carpenter

This has not happened in a vacuum. The US economy was strong compared with the rest of the world in 2015, and investment into new ventures in all sectors boomed—nearly $60 billion of venture capital (VC) went into US companies in 2015, according to the MoneyTree Report from PricewaterhouseCoopers (New York) and the National Venture Capital Association (Washington, DC, USA), using data provided by Thomson Reuters (New York). That amount is second highest in the past two decades.

But the amount of investment raised by life science companies was startling, blowing up all previous records. Our look at select biotech venture capitalist (VC) activity from Dow Jones VentureSource (Box 1) shows recent peaks for number of rounds, exits and returns, and an all-time high for amount invested. Yet both seasoned biotech execs and newcomers understand the funding bonanza will not last forever. A correction might already be underway—the public markets cooled in the second half of 2015, and then buckled in January. Observers have been beginning to wonder if a reversal is here to stay.

A rising tide

The sheer number of VC rounds last year for biotech companies (including startups and pre-existing private firms) and the mountainous sums raised have effectively reset the bar for companies seeking equity funding (Fig. 1). The largest round from 2015 is also the largest biotech VC round on record: Moderna Therapeutics's (Cambridge, MA, USA) $450 million (Table 1). This financing is as good a place as any to begin digesting 2015.

Figure 1: Global amount and number of financings raised through VC funds, 2006-2015.
figure 1

Source: Dow Jones VentureSource.

Table 1 Top VC deals, 2015

Moderna has raised more than $1 billion through venture rounds and upfront payments attached to licensing deals. It has at least 50 preclinical programs underway. Moderna's board includes biotech veterans Robert Langer (MIT, Cambridge, MA, USA) and Noubar Afeyan (Flagship Ventures, Cambridge, MA, USA). The technology, which came out of Harvard (Cambridge, MA, USA) focuses on synthetic modified mRNA as therapies. The platform claims to enable the expression of various proteins in vivo—antibodies, native or novel proteins and may have unique benefits in delivering pulses of therapy.

At the same time, it remains a young, preclinical company with an untested technology. It has not publicly disclosed a single protein target, any clinical data or recorded product sales. So when Forbes reported in January 2015 that Moderna had a $3-billion valuation following the latest round, even biotech insiders raised their eyebrows. The record financing became both a beacon for those beginning road shows, and something to point at for those arguing things had gotten out of hand.

CureVac (Tübingen, Germany), another RNA-based company, though focusing more on vaccines, took it as a beacon. Co-founded in 2000 by CEO Ingmar Hoerr, CureVac survived on service contracts, government grants, a tiny equity investment and the largesse of a wealthy individual, Dietmar Hopp, until the Bill and Melinda Gates Foundation (Seattle) approached the company in March 2015 and invested $52 million (Hopp added another $24 million). When CureVac then went looking for a sizable venture capital round, it referenced Moderna.

“We'd seen that Moderna was valued at $3 billion, and we said, [$1.4 billion] is a fair value for us—and we already have clinical data,” Hoerr says. CureVac tapped into the extensive Gates Foundation network and quickly closed a €100 million ($110-million) round in October, with Scottish- and US-based investors, and high-net-worth individuals. “I expected a much longer duration for the road show, but it was only two weeks speaking to investors,” he says.

The size of the Moderna financing and the speed with which CureVac closed its round exemplified private investing in 2015. Last year, 338 financing rounds went into biotech firms globally (Fig. 1), the highest number in seven years and the most since before the recession fully hit. Those rounds brought in nearly $9 billion—a 56% leap over 2014's previous record and almost double the five- and ten-year averages.

The United States itself recorded in 2015 the second highest number of rounds in its history, and a clear record in the amount raised, at >$6 billion—$2.2 billion more than 2014 (Fig. 2). But activity was also high in China, where companies raised 19 rounds and $640 million, and in Canada, with 12 financings for $84 million. Europe dipped to 92 rounds, the fewest in 15 years, but the rounds were rich, an increase of almost $500 million over 2014.

Figure 2: VC investment for drug development biotechs by region.
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Source: Dow Jones VentureSource.

The opulent rounds in Europe are emblematic of the overall environment. In 2015, the global average amount raised per round was more than $26 million (Fig. 3). That is a 44% increase over 2014, and nearly twice the amount raised per round just three years ago. The leap was driven by companies in the United States, where last year's average of $29 million per round is a new peak, besting five- and ten-year averages. Only China raised larger average rounds, at $33 million, though they had far fewer. European firms also benefited, averaging $22 million per round in 2015, trumping the five-year average of $13 million and more than doubling the ten-year average of $10 million.

Figure 3: Global average amount invested per VC round.
figure 3

Source: Dow Jones VentureSource.

These swollen financings ran all through 2015. The top ten financings in 2014 included five companies that raised more than $100 million; in 2015, all ten (Table 1) achieved that level, beginning with Moderna's $450-million round in January.

Moderna's European financing equivalent was Immunocore (Abingdon, UK), an immunotherapy company developing a platform in which a high-affinity monoclonal T-cell receptor (TCR) is fused to a humanized anti-CD3 single-chain variable antibody fragment (scFv) that engages T cells (termed, ImmTACs, for immune-mobilizing monoclonal TCRs against cancer). Its first product is in phase 2 for malignant melanoma. The company raised £205 million ($320 million) in what the company called Europe's largest-ever private financing for a life science company. In addition to its existing investors, Immunocore tapped new ones: Woodford Investment Management (Oxford), which invests in public and private tech and biotech; Malin (Dublin), an acquirer of biotech companies; and Fidelity Investments (Boston), which traditionally has invested in public equity and fixed-income markets. This is a far cry from a traditional syndicate of venture capitalists, bonding together to scratch up $30 million.

Another private biotech registering a top round was Stemcentrx (S. San Francisco, CA, USA), which raised $250 million in August 2015, after raising $100 million earlier that year. The company's investors include Fidelity, Artis Ventures (San Francisco), and Founders Fund (San Francisco). It is worth noting the involvement of Founders Fund, which was formed by Peter Thiel (who also founded PayPal and was an early investor in Facebook) and includes tech companies, such as Airbnb and the music-streaming service Spotify. Among the antibody–drug conjugates Stemcentrx is developing against various cancers, Rova-T (rovalpituzumab tesirine)—a humanized anti-delta-like protein 3 (DLL3) monoclonal antibody (SC16) connected by a dipeptide linker to a DNA-damaging pyrrolobenzodiazepine dimer toxin (D6.5)—is expected to complete enrollment in a phase 2 trial for small cell lung cancer (SCLC) by the end of this year. The company has four other products in clinical trials. The US Food and Drug Administration (FDA) has given Rova-T a breakthrough therapy designation, providing expedited review.

In late April, AbbVie announced it would buy Stemcentrx for $5.8 billion in cash and stock, with another $4 billion tied to clinical and regulatory milestones. Stemcentrx was founded in 2008 and raised <$475 million through three rounds of private financing before the $5.8-billion buyout. In investing terminology, that's called a home run.

Splitting the pie

The largest portion of last year's private investment went to immunotherapy and vaccine companies: $1.5 billion, a 37% increase over the previous high, set in 2014 (Table 2). Of that money, >$1 billion went to immunotherapy companies located in the United States.

Table 2 Investment by therapeutic modality

A close second was gene therapy, raising $1.45 billion, a 142% increase over 2014 levels, and far greater than the five-year average of $564 million, with US companies again pulling in the lion's share. Voyager Therapeutics (Cambridge, MA, USA) is a standout in this area. The company was formed in 2014 by biotech specialist Third Rock Ventures (Boston) with a $45-million series A round, and raised another $60 million in April of last year, with new investors Brookside Capital (Boston) and Partner Fund Management (San Francisco) leading the round. The company has a mix of five clinical and preclinical programs in adeno-associated virus-mediated gene therapy. In November 2015, it completed an $80.5-million IPO, moving from inception to public entity in fewer than two years.

Protein therapeutics companies raised nearly $1.2 billion, an increase of 35% over the year prior, with European and US companies commanding near-equal portions of that money.

More than a billion also went into small-molecule therapeutics, but specialty pharmaceutical companies recorded only about $200 million in financings, less than in 2014 and slightly below the five-year average ($212 million). Though investment in companies focused on biomaterials rose about 22%, it was an increase of just $25 million, showing the field generally garners less interest from venture capitalists than biopharmaceuticals.

An overwhelming amount (81%) of the $9 billion raised in 2015 went to companies in the early, unprofitable stages of their growth (Table 3). This is typical—the average amount invested in product development companies over the past five years is around 85% of the total, for our set of venture-backed, drug development companies.

Table 3 VC investment by stage of development

Companies generating revenue also received more in 2015, with 79 rounds worth $1.6 billion, compared with 53 rounds in 2014 worth $717 million. Scant VC money went into 'startup' companies—just three by Dow Jones's count—but these firms are traditionally fed by seed or angel investors.

Likewise, just two VC rounds went into profitable companies in 2015—those entities have an easier time tapping public markets for investment and have less need for VC attention.

What is telling in these data is the combination of rounds, versus money raised. In 2015, there were 254 rounds put into 'product development' companies, with the United States and Europe leading the way. This was the most since 2008 when there were 281 rounds. Yet the value of those 254 rounds, $7.2 billion, was easily the most ever, besting 2014's previous high by more than $2.3 billion, and 2008's total by $3.2 billion. This is the story of private biotech investing today—massive amounts per round, being offered by non-traditional, generalist investors working alongside the traditional VCs. These 'outsiders' have been piling into the space, throwing their weight into larger and larger rounds, driving up valuations and pushing biotechs toward the public markets at an increasing speed.

Back to you

Nearly $3 billion was raised through IPOs last year, by 42 companies (Table 4). That is well above the five-year average, but a substantial step down from 2014, when $5.2 billion went to companies debuting on the public markets through 78 IPOs. The top drug development IPOs for 2015 (Table 5) include Axovant (Bermuda), a company quickly built around a failed GlaxoSmithKline 5-hydroxy tryptamine antagonist small-molecule in Alzheimer's (intepirdine/RVT-101; Box 2); natural killer cell therapy developer NantKwest (Culver City, CA, USA), majority controlled by its billionaire CEO, Patrick Soon-Shiong; and Cassiopea (Milan), a spinout of Cosmos Pharmaceuticals (Luxembourg), which is developing anti-androgen small molecules and antibiotics to treat dermatological indications such as acne and alopecia, and antivirals for the treatment of human papillomavirus. But even the more typical venture-backed private biotechs have had short trips to the public markets.

Table 4 Exits from selected regions
Table 5 Top drug development biotech IPOs of 2015

The gene therapy company Spark Therapeutics (Philadelphia) launched in 2013 with a $50 million commitment from The Children's Hospital of Philadelphia. It added in May 2014 a handful of crossover investors—which, generally speaking, invest in both public and private entities—through a $72.8-million series B financing. Eight months later, it closed a $185-million IPO, providing those VC investors with a (theoretical) exit in fewer than two years, and raised another $94 million in a follow-on offering in December 2015.

Blueprint Medicines (Cambridge, MA, USA), a cancer genomics company, moved even quicker. It pulled down $50 million in a series C financing in November 2014, supported by a host of crossover investors, and fewer than six months after that private round conducted a $146.6-million IPO. Nearly the same can be said of all the venture-created companies in our list of top IPOs. Indeed, the average time between the crossover round and IPO for those companies was fewer than eight months. Time is money, and in 2015, it didn't take long for crossover investors to make it in bunches.

These receptive public markets influence merger and acquisition activity. There was a slight increase in overall action last year (Table 4), particularly in Europe, where the 16 buyouts of venture-backed, private biotechs was the largest number seen since the recession, and well over the five-year average of ten. The United States, however, dipped from 20 to 15. Yet the impact of the open public market is felt through the collective value of all those global acquisitions: $8.8 billion, an increase over the $8.45 billion raised in 2014—record totals, and well above the five-year average of $6.3 billion. When private biotechs have the option of going public for exits, company executives can take a harder stance in acquisition discussions, especially when facing eager pharma companies in need of pipeline filler.

Among last year's buyers was Juno Therapeutics (Seattle), acquiring German biotech Stage Cell Therapeutics, for €52.5 million ($59 million), plus stock and potential milestone payments. The move was meant to grow Juno's chimeric antigen receptor T (CAR T)-cell pipeline, and it gave Juno access to cell selection and activation processes, and manufacturing automation technologies, Juno said. Juno then bought X-Body (Waltham, MA, USA) for $21 million and stock, plus milestones. Recall that in 2014 Juno raised $300 million in two private rounds, and executed its IPO in December for another $300 million. That strong financial position has allowed the company to grow by acquisition.

In February, Bristol-Myers Squibb (BMS; New York) bought Flexus Biosciences (San Carlos, CA, USA) for $800 million upfront, with another $450 million tied to development milestones. The buyout gave BMS several small-molecule checkpoint inhibitors that target the enzymes indoleamine 2,3, dioxygenase-1 (IDO) and tryptophan 2,3,-dioxygenase (TDO), one of which was cleared in the second half of 2015 for clinical trials. The other programs were spun out into a new entity managed by Flexus's shareholders.

Flexus was founded in 2013; it had raised $38.4 million in two quick rounds before the buyout. For those keeping score, and many were, the company went from launch to a potential $1.25-billion value (including milestone payments) in about 17 months.

That acquisition points to pharma's need for biotech R&D. Historically, it has gained this through in-licensing or acquisition, as in the Flexus buyout, but in recent years, pharma has begun to interact with biotechs in all sorts of new ways. In January, AstraZeneca, GlaxoSmithKline and Johnson & Johnson Innovation in London joined up with the technology transfer offices (TTOs) of Imperial College London, University College London and the University of Cambridge to create the Apollo Therapeutics Fund. Each pharma partner is to invest £10 million over six years, and each TTO is to contribute £3.3 million. The goal is to fund preclinical academic research until it can be licensed in by one of the pharma partners through a bidding process, and the pharma trio is expected to provide guidance on R&D and commercial aspects of the projects along the way.

Biotech specialist Medicxi Ventures's new €210-million fund (Box 3) includes participation from GlaxoSmithKline and Johnson & Johnson Innovation. Indeed, these days pharma is pursuing every avenue into small biotech. Nina Kjellson, general partner at Canaan Partners (Westport, CT, USA), says she sits at the bargaining table with big pharma and “they'll have six or seven people in the room from their side, representing six or seven ways that they can work with venture-backed startups,” including members from search and evaluation, from their innovation center, from their M&A team, or “people investing directly off the balance sheet.” It's a long way from the days when pharma licensed a product, or bought the company outright, and that was it.


When private biotech investment booms, whether in the current or previous cycles, the cause has never been a vastly increased specialist VC base. Though there are new biotech-focused investors being added to the field (Box 4), the deluge of money is coming from outside the regular circle of VCs and pharma corporate investing arms (relatively new to biotech themselves). The private biotech asset class for the past three years has been making money like it's the Bureau of Engraving and Printing, and hedge funds and investor banks would be doing their clients a disservice not to follow the cash flow.

A list of the most active investors of 2015 (Table 6) has OrbiMed (New York) again atop the throne. This is a long-standing investing enterprise that has more than 100 healthcare companies in its private fund portfolio, while managing about $15 billion across the public and private spaces. OrbiMed was the top investor in private drug development companies for 2014, too, although last year, it increased its participation to 26 rounds valued at $1.14 billion—a nearly 40% jump in money invested.OrbiMed has also participated in more robust rounds than previously. The average value of the rounds OrbiMed participated in during 2014 was $37 million. Last year, the average climbed to $44 million.

Table 6 Top investors into private biotech of 2015

Below OrbiMed are crossover investors RA Capital (Boston) and Fidelity, both with major increases in volume over 2014: Fidelity leaping from 9 to 22 investments in 2015, and RA Capital moving from 10 to 24. Fidelity also had the distinction of investing in the most lavish rounds, on average, at more than $70 million per investment. Rock Springs Capital (Baltimore) and Cormorant (Boston) also make the top 10.

The crossover investors are the force behind the record amounts being crop-dusted over biotech (Table 7). The group in Table 7 invested in just three private biotech rounds in 2011, and eight in 2012, before nearly tripling, then almost quadrupling the number again, and finally reaching 180 investments last year, peaking in the third quarter.

Table 7 Select crossover investments

Looking at those piles of money, the first question that rises is, What happens if it all goes away?

Public feeds private

Ian Sanderson is the former chief financial officer at Catabasis (Cambridge, MA, USA), a company developing an omega-3 fatty acid linker technology to combine different small-molecule drugs against inflammatory conditions. Before Catabasis, he spent some time working in investment banking. “When I was inside the industry,” he says, “what I always underestimated was the power of the generalist money flow, and how quickly it goes away. Everybody assumes it's sticky money, but it's not.”

The moment the public markets tighten, and companies receiving a crossover private round are unable to go public six months later, the outsider money will drift elsewhere. This process may have started in the second half of 2015. The NASDAQ biotech index had a high close for the year on July 20, 2015, at 4,165.87. By the end of 2015, it had dropped 625 points. The free fall continued in 2016, closing incrementally lower throughout January until it bottomed out at 2,552.13 on February 11. This valley mirrored a dip in the broader markets, but whereas the S&P 500 index has since recovered to December 2015 levels, biotech indices have not.

The slowdown in IPOs has had a profound effect on crossover investing in biotech. Data from Silicon Valley Bank, which tracks crossover rounds, show the peak of a very busy 2015 came in the third quarter, when the 15 crossover investors found in Table 7 participated in 68 deals. That fell to 28 in the fourth quarter of 2015, and just 17 in the first quarter of 2016.

As this year began, the IPO market got even quieter: there were no NASDAQ biotech IPOs in January. Investors began to fidget, and eyes turned to Editas (Cambridge, MA, USA)—a company on file for an IPO, built on the buzz of CRISPR technology and with prestigious backers. If it flopped, the sector would be in real trouble, the thinking went.

Editas priced at $16, the bottom of its suggested range, and stumbled out of the gate: it rose on opening day, but dropped below $13 six days later. From there, however, it went on a bull run, with share prices climbing to >$40, giving preclinical Editas a valuation nearing $1.5 billion. Observers exhaled.

There were ten biotech IPOs in 2016's first quarter. Slower than last year, but not as dry as some had expected. Yet if that pace continues, it will mean a much lower level of crossover investment for 2016. There have already been signs of a slowdown in private financing. A report from Venture Valuation, which uses data from the database Biotechgate (, shows that, after a solid January and February, private biotech (therapeutics and diagnostics) investing fell by nearly 40% in March from the month prior, with most of that decline coming from the United States. Data also show March recorded 26 financing rounds in 2016, raising $245 million, versus 41 for $978 million in 2015.

What remains

The number of VC investors (including corporate investment arms) that participated in at least one round in 2015 dipped to 229 in 2014, down from 238. Most of those VC firms did their work in the United States, participating in 153 rounds, about the same amount as in each of the previous four years (Table 8).

Table 8 Number of active VC firms*

Still, data from biotech multimedia company BioCentury show that 140 series A rounds were closed in 2015—15 more than 2014 and more than any other year in biotech's history (Fig. 4). In the past three years alone, 389 young, small biotechs raised their first rounds and opened for business. Often, even in high times like these, complaints surface that not enough VC money goes to new biotechs, but Figure 4 suggests that over the past three years, this grumbling isn't caused by dwindling supply as much as by increasing demand.

Figure 4: Number of A rounds, 2000–2015.
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Source: BioCentury.

However, the argument can be made that the amount of VC attention for biotech firms is not increasing fast enough. Data from 2016's National Venture Capital Association Yearbook show that VCs in 2015 put 88% more money into biotech than a decade earlier, but through only 12% more deals. Interest in software companies, however—built relatively inexpensively with much shorter product timelines—has exploded. VCs in 2015 put 340% more money into this sector than in 2005, through 84% more deals. Biotech entrepreneurs salivate for that type of growth.

The sense of doom that persisted in the early part of the year, when January passed without a NASDAQ biotech IPO, has abated. Through April, a dozen companies have gone public, and the dropping NASDAQ biotech index has leveled off. It's likely 2016 will reveal biotech inhabiting the other side of a spike, but not a disaster.

That's partially because disaster is harder to come by in biotech than it once was. Rodger Novak, CEO and a co-founder of CRISPR Therapeutics (Cambridge, MA, USA), says that the “blue chip investors are much better educated” than they used to be.

“I think they have an understanding of the risk now,” he says. “If something goes south [with one company], I don't think that spills over to other technologies. It might have some impact, but people have a much better understanding of what they are doing.”

In other words, even if clinical trial results from a high-flier like Juno or Editas call into question the entire CAR T-cell or CRISPR fields, or if outside forces—2016 is an election year, after all—pull the public markets into tumult, it seems less likely that biotech will enter another desert, like the one seen in 2009.

Ken Horne, CEO of Symic Biomedical, (Emeryville, CA, USA), also has experience as a venture capitalist. “I see a lot of diversification in terms of capital sources now,” he says. “Traditionally, it used to be 30 VCs that did life sciences. It went to 50 and then 100 back in 2007, before it contracted down to 30 [in the recession]. Now it's back to 50. We know those crossover guys are going to go away again, but besides VCs and crossovers, now you've got family offices and you've got [limited partners] and you've got sovereign funds. There is money out there—you just have to work creatively to go find it.”

Art Krieg, founder and CEO of Checkmate Pharmaceuticals, (Cambridge, MA, USA) secured $20 million in a series A in August 2015. He also co-founded Coley Pharmaceutical (Wellesley, MA, USA) and RaNA Therapeutics (Cambridge, MA, USA), and served as CFO at Sarepta Therapeutics (Cambridge, MA), so he has a long view on biotech's fluctuations. “People are worried about the indices being down, but my god, they've gone up by so much over the last few years,” he says. “And the amount of capital that is now in venture capital funds to be deployed for new rounds? Even if the generalists pull out of the sector and there is no new capital coming in for a while, there is enough there to sustain a lot of the existing companies.”

Biotech remains one of the few growth industries the United States has, and it has been resurgent in Europe of late. In fact, all over the world, economic development plans increasingly encompass biotech's entrepreneurism. The sector is on solid ground. But perhaps biotech actually needs a downturn. Periods of welcoming public markets and heavy investment from outsiders lead to some bad habits (Box 2), and companies that might otherwise not attract attention are formed and become public. In times like this, metaphorically, the herd grows fat.

Canaan's Kjellson adheres to this theory. “I'm a believer that pressure and adversity distills quality,” she says, and points to the “nuclear winter” of 2009–2011, when companies had to be built with responsible business plans, disruptive science and thoughtful financing to attract investors. “I think this current incredible renaissance has been enabled” by those companies being formed, she says.

“And in the background of that,” she adds, “we have tenfold as many seasoned experienced entrepreneurs in biotech as we used to, and we've had phenomenally talented people coming out of the best pharma companies due to their [layoffs and reorganizations], as well. They believe they can do better science, and faster, more exciting projects within these venture-backed biotech companies than they could within their much larger, bloated infrastructure in pharma.”

After 2015, they have a fresh $9 billion with which to do it.