$100 million for Rapport Therapeutics. $112 million for Noema Pharma. $108 million for Bicara Therapeutics. The mega-round has come roaring back in the past few weeks, but is biotech really healing?
Not quite, say executives from venture capital and biotech incubator firms. Series A rounds are an easy sell at the moment, according to Leaps By Bayer Head Jürgen Eckhardt, M.D., although fewer of them overall are getting done and the ones that are, are smaller. What’s continuing to hamper biotech is the series Bs, Cs, and crossover rounds that set up an IPO. That’s where Flagship Pioneering Senior Partner Bernie Cooney needs to see more action to have confidence that biotech is making a comeback.
“Watching the bear market the last two years, I think you take any green shoots that you can,” Cooney said in an interview.
2022 was defined by aggressive rate hikes from the Federal Reserve, which correlated with a downturn for publicly listed biotechs, according to Cooney. That trend broke around July when biotech stocks started actually rising on good news, rather than trending downward with the larger market. Investors began to support companies that were able to put up solid data again.
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But IPOs were few and far between. The companies that did make a jump for the public markets saw their share prices tumble. In 2023, few are making the leap.
“Nobody knows how long this sort of nuclear winter or however you want to call it in terms of biotech financing is going to last, right? We all hope it’s gonna recover quickly, but, you know, we’ve seen these situations last for more than just a couple of years,” Eckhardt said.
Still, the number of $100 million financings is a good start to what Cooney and Eckhardt hope will be a better second half. “The signal to the market—I hope it’s a positive signal—is that biotech is not dead,” Eckhardt said. “Science is not stopping because there is a down market.”
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However, “if you look a little bit below the surface,” generalist investors have not come back to the sector, according to Cooney.
Public equity market investors have been less willing to put their money into illiquid, long-term assets. This means the crossover rounds, where an investor buys into a company as it leads up to an IPO filing, have been extremely scarce in biotech. Typically, an investor could cash out at IPO, take the money—gains, hopefully—and invest back into the market so the cycle repeats.
But that system has been completely backed up. Cooney said the IPO window needs to open up to really see healing in the sector. VCs have plenty of dry powder, and that’s what Cooney thinks is mostly going into the latest mega-rounds. He said raises from Cargo Therapeutics ($200 million series A), Metagenomi ($100 million series B extension) and Aera Therapeutics ($193 million series A and B) are “great to see.”
“It’s certainly better than not getting done at all but I’d still like to see further participation from those public market investors,” Cooney said.
‘A rough ride to come
In this market, Eckhardt says a company has to have three things: a “strong protagonist” (or people leading the company), good science, and a strong syndicate of investors. These investors have to be willing to stay involved for the long haul, otherwise, this will be a tough era to survive. He spoke to Fierce Biotech as his firm revealed the $100 million financing of bat biology biotech Paratus.
“If you have syndicates that can’t fund these companies by themselves, they need new outside investors. Things can be [tough] in such a market. Why? Because then it’s unclear how quickly we’ll be able to IPO and exit,” Eckhardt said of financial-focused VCs.