venture funding of therapeutic innovation

Venture Funding of Therapeutic Innovation A Comprehensive Look at a Decade of Venture Funding of Drug R&D
February 2015
BIO INDUSTRY ANALYSIS
Access to early-stage financing is the lifeblood of biotechnology innovation. For therapeutic-focused biotechnology companies in particular, the required capital and development timelines dwarf most other industries, making it challenging to find sizable early investments from committed investors. As the world’s largest trade association representing biotechnology companies across the United States and in more than 30 other nations, it is important for BIO to better understand investor trends in order to determine where scientific or policy issues may be impacting the ability to maintain a robust pipeline of innovative medicines.
In this report, we set out to better understand where venture financing over the last decade has been put to work in terms of disease area and novelty of research. Some of the key findings of this first-of-its-kind report are:
• Over the last decade, 78% of U.S. venture investment for therapeutics went toward novel drug R&D, suggesting innovation is a core priority for venture investors.
• Comparing five-year periods before and after the recent financial crisis (2004-2008 vs. 2009-2013), total funding of drug R&D dropped 21%, from $21.5 billion to $16.7 billion.
• Disease areas affecting large populations of Americans have seen a decline in novel drug R&D funding over the five-year periods: Diabetes (-81%), Psychiatry (-56%), Gastrointestinal (-49%), Respiratory (-41%), Cardiovascular (-33%).
• Rare disease funding has seen a large increase over the past decade in terms of both dollars raised and number of companies funded.
• Threefold more venture dollars were raised by companies working on drug improvements of previously approved pain drugs than for novel drug R&D in Alzheimer’s Disease.
• Biologics developers now receive 50% of total venture funding for therapeutics, up from only 27% in 2004, with most of the increase seen after the signing of the Affordable Care Act in 2010, which included 12 years of data exclusivity for biologics.
• There are fewer first-time Series A financings in recent years, down 30% from a peak in 2006.
With a contracted life-science investor base and an investor community continuously examining issues such as industry productivity, the reimbursement landscape, scientific barriers, and regulatory hurdles, some areas of therapeutic innovation are bound to face greater challenges than others. This report will help inform our future policy work and provide industry, policymakers, and other stakeholders with a comprehensive view of the investment environment.
Sincerely,
A Letter from The Honorable Jim Greenwood & Dr. Cartier Esham
Jim Greenwood President & CEO, BIO
E. Cartier Esham, Ph.D. E.V.P., Emerging Companies Section, BIO
BIO Industry Analysis | 1
Phase of Development ...............................................................................................................................................................................................4
2 | BIO Industry Analysis
Introduction To investigate investor trends, examine investment in specific therapeutic areas and indications, and study whether there are disease areas that might be struggling for early-stage venture equity financing, we analyzed data from four venture capital databases to create the broadest, most comprehensive study possible – a categorization of $38 billion of venture capital into more than 1,200 U.S. drug companies, receiving more than 2,000 rounds of funding over the last 10 years (2004-2013).
We categorized each company’s lead research focus at the time of investment by: phase of development, disease and indication, modality, and, most uniquely, level of novelty. More specifically, individual tranches within each investment round were tagged by lead program at the time funding was received. This allowed us to capture changes in company therapeutic focus over time (see Methodology for more details).
To assess level of novelty, we grouped companies into two categories: 1) novel R&D of new chemical entities with no prior regulatory approval, and 2) R&D that improves upon existing therapeutics, such as new delivery methods, new formulations, or development of approved drugs for new indications (repurposing). Both have their place in the spectrum of drug development and, in the end, serve to benefit patients. Products generated from the second category will improve the quality of life for patients through enhanced benefits of already approved drugs. Over time, these benefits have proven valuable in expanding use, compliance, and overall patient experience.
The first category of novel drug R&D examines truly innovative and potentially disease-modifying agents for diseases with current unmet medical need. Without adequate funding of novel drug R&D, the next generation of innovative medicines cannot be discovered.
This report also analyzes financing in specific therapeutic areas in order to better determine where scientific or policy issues may be impacting the ability to maintain a robust pipeline of innovative medicines – a goal that is shared by patients, healthcare providers, policymakers, investors, and the biopharmaceutical industry alike.
Ten-Year Venture Funding Trend As shown in Chart 1, venture equity funding of private drug development companies peaked in 2007 with $5 billion in total funding. This was followed by a severe decline through the financial crisis of 2008 and into 2010, a year in which only $2.8 billion was raised, a drop of 44% from the industry’s peak in 2007. Since that time, investment has begun to trend upward, but only to $3.6 billion in 2013. The industry has not made it all the way back to the heights of 2007, in part because of an exodus of biotech venture investors. In fact, it is estimated that there were 40% fewer biopharma venture investors in 2013 than in 2007.1
When comparing the relative amount of total financing for novel drug R&D vs. drug improvement R&D, we found that the majority of venture investment (78% on average over the last 10 years) is directed toward novel drug R&D. However, as will be described below, there are major disparities within specific therapeutic indications. For some areas the percentages are reversed, with as much as 70% of investment going into improving existing drugs rather than novel, potentially transformative medicines.
Novel Drug R&D = R&D pursuing new chemical entities to treat disease, with no prior regulatory approval.
Drug Improvement R&D = R&D that improves upon existing therapeutics, such as new delivery methods, new formulations, or using approved drugs for new indications (repurposing). Examples: Drug delivery patch, topical cream, implanted delivery device, needle-less injection, extended release, prolonged half-life chemical modifications (conjugations, including pegylated variants), reformulations of approved drugs, repurposing of an approved drug, nutraceuticals.
Total Venture Funding of Drug R&D, 2004-2013
Chart 1. Total venture funding 2004-2013. Funding is represented as investment toward R&D of novel molecular entities vs. R&D for
improvements of approved drugs (including delivery, repurposing, and reformulation).
Novel Drug R&D
Drug Improvement R&D
Total Venture Funding by Phase of Development – Core Focus on Early-Stage We also examined total investment dollars broken down into the five phases of drug development: Preclinical; Clinical Phases I, II, and III; and market launch. More than half of venture investment goes into companies at the early drug development stages, with 34% of dollars going into companies not yet in human testing and 20% to companies in Phase I, which is predominantly the safety testing stage in humans. Preclinical funding in 2013 is near where it was back in 2004 (near ~$1.5 billion), which was the highest level of the last decade.
The clinical Phase II companies received 30% of venture dollars over the last 10 years, a significant percentage that enables companies to complete ongoing Phase II trials or to fund an expensive Phase III trial. Companies in Phase III at the time of financing, account for only 12% of the total funding. As Phase III trials are the most expensive to conduct, many companies seek large pharmaceutical or established biotech partners to help finance the cost of these trials. Alternatively, companies can raise larger sums of money for Phase III trials when they raise capital in an initial public offering and follow-on offerings. This fact, combined with the Phase III funds raised when a company is in Phase II, may explain the low percentage of overall funding into Phase III companies. Note that we categorize a company’s Phase at the time of receipt of funding, which may not be the Phase that the invested dollars will actually be used for. A tiny fraction of the 2004-2013 funds went into a few private specialty companies with drugs already on the market, for a total of 3%.
Total Venture Funding by Phase of Drug Development
Chart 2. Total venture funding by Phase of Drug Development, 2004-2013.
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Large Molecules = Complex biologic entities that are either made using living cells or require advanced biochemical synthesis. Vaccines are included in this group, and on average make up 12% of the “biologics” category over the study period.
Small Molecules = Traditional, chemically synthesized pharmaceuticals commonly associated with oral pills.
Total Venture Funding by Drug Type – A Shift to Biologics While biotechnology can be understood as utilizing genetic and cellular engineering to achieve new biologic products, only one third of companies in the industry actually work on biologics development. Nearly two thirds of companies develop small molecules, the traditional pharmaceutical modality that is commonly associated with oral pills. However, if venture funding is an early indicator of what is to come, this distribution may be shifting to more biologics companies. The percentage of biologics R&D (large molecule R&D, including vaccines) being funded back in 2004 was 27%; in 2013, it reached 50%. The majority of the increase in biologics investment took place in the last few years, from 2011 to 2013.
“The 12 year data exclusivity for biologics, which BIO succeeded in getting signed into law in 2010, has added to the growing interest in this innovative modality”
Jim Greenwood, CEO, Biotechnology Industry
“The enthusiasm for biologics investment has a lot to do with the expansion of platform technologies, like RNA and gene–based therapies – many of which were not well appreciated a decade ago”
Bruce Booth, Partner, Atlas Venture
Biologics vs. Small Molecules
Chart 3. Modality shift over 10 Years of Venture Financing.
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Venture Funding by Disease Category We grouped annual investments into 14 major therapeutic categories by a company’s lead program at the time of investment. We then further subdivided these into sub-indications to identify areas responsible for decreases or increases in funding. Chart 4, below, shows the total investment breakdown by main disease area.
Total Venture Funding by Disease
Chart 4. Total venture funding by disease category, 2004-2013.
Oncology was the top funded disease area by a wide margin. Oncology accounted for 24% of all investment dollars in the last 10 years, with over $9 billion in total dollars invested, followed by Neurology and Infectious Disease funding with 12.1% and 10.9% respectively. Together these three disease areas account for almost half of the total venture financings. On the other end of the spectrum, combined financing for Psychiatry, Gastrointestinal, and Respiratory makes up less than 10% of the total.
We also looked at disease-specific increases or decreases in financing over time. For this, we compared year- over-year changes as well as five-year windows – the most recent five-year window versus the preceding five-year window. This splits the 10-year period into pre-financial crisis (2004-2008) and post-financial crisis (2009-2013).
Oncology
Neurology
ID
Platform
Other
CV
Endocrine
Metabolic
Ophthalmology
Immunology
Hematology
GI
Psychiatry
Respiratory
Venture Dollars Raised ($M)
Novel Drug R&D Drug Improvement R&D Total Funding
Disease Area 2004-08 2009-13 2004-08 2009-13 2004-08 2009-13 2004-13 Change %
Oncology $3,932 $3,869 $958 $370 $4,890 $4,239 $9,129 -13%
Neurology $1,627 $991 $1,262 $735 $2,889 $1,727 $4,615 -40%
ID $2,065 $1,462 $406 $204 $2,471 $1,666 $4,137 -33%
Other $937 $948 $416 $484 $1,352 $1,433 $2,785 6%
Platform $1,095 $1,150 $81 $116 $1,176 $1,266 $2,443 8%
CV $1,049 $700 $356 $324 $1,405 $1,024 $2,429 -27%
Endocrine $962 $384 $458 $590 $1,420 $974 $2,394 -31%
Metabolic $872 $1,192 $97 $23 $969 $1,214 $2,183 25%
Ophthalmology $633 $715 $175 $170 $807 $885 $1,693 10%
Immunology $777 $604 $106 $80 $882 $685 $1,567 -22%
Respiratory $596 $352 $270 $139 $866 $491 $1,358 -43%
Hematology $672 $466 $30 $59 $703 $525 $1,228 -25%
GI $581 $299 $247 $12 $828 $311 $1,140 -62%
Psychiatry $465 $203 $123 $99 $588 $302 $889 -49%
TOTAL $16,264 $13,337 $4,983 $3,407 $21,247 $16,743 $37,991 -21%
Table 1. Venture funding by disease ($M), 2004-2008 vs. 2009-2013, broken down into Novel Drug R&D and Drug Improvement R&D. Ranked by
total amount raised over 10 years.
Platform = These companies are engaged in molecular platforms that can generate numerous new chemical entities. This category includes companies with no clearly defined lead product whose research has a potentially broad application, such as inventions within antibody generation, antibody scaffold design, gene therapy, stem cell therapy, regenerative medicine, or patented small molecule design (combichem, cyclization chemistry, covalent linkage). Once companies identify a lead product and utilize the majority of their funds for that product, they are relabeled as a product company within a specific disease indication.
Other = This area includes Dermatology, Allergy, Renal, Osteoarthritis, Musculoskeletal Disorders, Genitourinary, and others.
For the overall funding comparison for all disease areas for the two five-year timeframes, a drop of 21% was realized, from $21.3 billion in 2004-2008 down to $16.7 billion in 2009-2013. Although significant, when we look at specific disease areas, as in table 1, we see drops in funding that are two to three times that percentage. When breaking out novel drug R&D funding, significant declines in 9 of the 14 other disease categories are found. As illustrated in the chart below, there are declines in the amount of novel R&D funding going into most of the disease categories examined.
“The data found within this kind of analysis should help stakeholders better assess scientific, regulatory, and public policy issues that may have dramatic impact on venture capital investments within specific disease areas.”
Robert Kiss, Managing Director, J.P. Morgan Asset Management
Change in Novel Drug R&D Venture Funding by Disease Area
Chart 5. Novel drug R&D venture funding by disease area, 2004-2008 vs. 2009-2013.
The chart above compares novel drug R&D funding by disease in the two prior five-year windows, 2004-2008 vs. 2009-2013. The most notable decreases are found in Endocrine (-60%), Psychiatry (-56%), Gastrointestinal (-49%), Respiratory (-41%), and Neurology (-39%). These are substantial declines that have impacted many entrepreneurs across the industry seeking additional funding for diseases effecting large populations. For many of these areas, the breakout by sub-indication (below) provides additional insight into these large decreases in investment.
Metabolic
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Platform
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Oncology
Immunology
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Neurology
Respiratory
GI
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Endocrine
Oncology
Oncology is a very diverse set of literally hundreds of different diseases. Biotechnology has been at the cutting edge of new breakthroughs to meet unmet medical needs in this area. Many of the investments over the last decade have led to notable advancements, such as immuno-oncology, targeted antibodies, and selective kinase inhibitors. The field is on the brink of making biomarker-defined, patient-stratified medicine a reality. Innovation is evident throughout the majority of oncology investments since 2004, as nearly 85% has gone toward novel R&D as opposed to improvements of older regimens. In this regard, oncology could perhaps serve as a benchmark by which other disease areas should be funded: significant amounts of funding, high levels of innovation, and a broad diversity of companies. Unfortunately, as will be described later, other disease areas have seen just the opposite over the last few years.
Venture funding of companies with lead programs in cancer was just over $9.1 billion over the last 10 years and accounted for 24% of total venture capital raised - the largest of the 14 disease categories. Looking at the data year by year in Chart 6, we see a drop of almost 50% from the 2007 peak into 2010. This illustrates that even a top- funded disease area like Oncology did not escape the pullback in drug discovery investment in the years following 2008. The bulk of Oncology R&D funding (66%) occurred at the Preclinical and Phase I stage, and the number of companies per year receiving funding has increased since the lows in 2005-06.
More than 1.6 million Americans are expected to be diagnosed with cancer, and more than 585,000 are expected to die in 2014 alone.2
Oncology 2004-2013
Chart 6. Total venture funding ($M) into companies with lead drug R&D in Oncology, 2004-2013. Left: Novel R&D vs. Drug Improvement
R&D. Right: Total Investment by Phase of R&D and number of companies receiving financing per year for a specific venture round.
2004-2008 2009-2013 % Change 2004-2013
Avg. # of Co.’s per Year 57 68 19% 62
% of all Venture Investment 23% 25% 10% 24%
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Neurology
We have split the Central Nervous System (CNS) diseases into two main groups: Neurology and Psychiatry. The area of Neurology includes neurodegenerative diseases such as Alzheimer’s, Parkinson’s, Amyotrophic lateral sclerosis (ALS), and Huntington’s disease, as well as the relatively large area of Pain. Additionally, the nerve cell autoimmune disease Multiple Sclerosis is included in this group along with brain and spinal cord disorders, sleep medicines, stroke, and many other neurological diseases. Psychiatric medicine, analyzed later in this report, includes mental health disorders.
Venture funding of companies with lead programs in Neurology was just over $4.6 billion over the last 10 years and accounted for 12% of total venture capital raised. However, we observed a significant decline when we compared funding in the five-year windows - from $2.8 billion in 2004-2008 to only $1.7 billion in 2009-2013, a decline of 40%. Funding for novel R&D in Neurology dropped even more, by 56%. The number of companies financed in Neurology reached 40 per year, while investment dropped over the latest five-year period. This would imply companies are receiving smaller amounts of funding.
2004-2008 2009-2013 % Change 2004-2013
% of all Venture Investment 14% 10% -24% 12%
Neurology 2004-2013
Chart 7. Total venture funding ($M) into companies with lead drug R&D in Neurology, 2004-2013. Left: Novel R&D vs. Drug Improvement
R&D. Right: Total Investment by Phase of R&D and number of companies receiving financing per year for a specific venture round. The
spike of 2004 is largely due to a $250 million B round into a single company and six rounds over $40 million.
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Chart 8. Relative venture funding of Pain vs Neurodegenerative diseases Alzheimer’s, Parkinson’s, and Multiple Sclerosis. Novel R&D vs
Drug Improvement R&D.
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From Chart 8, it is clear that pain accounts for the majority of all Neurology funding. Funding of pain medicine R&D has been threefold higher than the major neurodegenerative areas.
Pain 2004-2013
Chart 9. Total venture funding ($M) into companies with lead drug R&D in Pain, 2004-2013. Left: Novel R&D vs. Drug Improvement R&D.
Right: Total Investment by Phase of R&D and number of companies receiving financing per year for a specific venture round.
What is perhaps more significant is that the majority of this funding has gone to delivery of approved pain therapies, not novel R&D. Only 33% of dollars invested in pain since 2004 went toward novel R&D, as can be gleaned from the year-by-year chart data in Chart 9.
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Alzheimer’s Disease Relative to the large population in need of new therapies and burden to the healthcare system, the dollar amount heading into Alzheimer’s-focused companies is quite small. For example, Ophthalmology received 5x this amount, while delivery and reformulation of previously approved Pain drugs received 3x more funding. From Chart 10, there does seem to be a silver lining in the trend, as funding has been increasing. There has also been an increase in the number of companies that received funding for early-stage research. The spike in 2005 was primarily from just two companies working on improvements to approved drugs.
Parkinson’s investment was even less than Alzheimer’s, and when looking at the five-year windows novel drug R&D fell from $103 million to only $27 million, a 74% decrease. Some of this is
likely explained by the fact that companies are tagged by lead product only, and many of the companies working in Alzheimer’s have other neurodegenerative disease programs such as Parkinson’s. When aggregate funding falls below $50 million per year and the number of companies financed is less than five per year, the change can be significantly influenced by just one or two sizable rounds. Similar issues arise in the year-by-year chart for Multiple Sclerosis focused companies as shown in Chart 11.
Alzheimer’s disease is ranked as the sixth leading cause of death in the United States, and it is estimated it will affect 7.1 million people age 65 and older by 2025. In 2014, individuals with Alzheimer’s are estimated to cost the healthcare system $215 billion in payments, which is projected to increase to $1.2 trillion by 2050.3
Alzheimer’s 2004-2013
Chart 10. Total venture funding ($M) into companies with lead drug R&D in Alzheimer’s Disease, 2004-2013. Left: Novel R&D vs Drug
Improvement R&D. Right: Total Investment by Phase of R&D and number of companies receiving financing per year for a specific
venture round.
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Multiple Sclerosis
Chart 11. Total venture funding ($M) into companies with lead drug R&D in MS, 2004-2013. Left: Novel R&D vs Drug Improvement R&D.
Multiple Sclerosis The same issue of too few companies and tiny funding amounts is evident with companies supporting a Multiple Sclerosis lead program. The decrease in funding for novel therapies (from $362 million to $78 million post- financial crisis) is largely due to two companies raising large amounts in the earlier dataset. In 2004, the majority of investment ($77 million) went toward two companies in B and C rounds. In 2008, the majority of investment ($75.8 million) went toward a single company’s B round.
Other Indications Other indications in Neurology account for a much larger portion of funding in this disease area, representing a third of all Neurology and a fourth of all CNS funding. This group, which includes Amyotrophic lateral sclerosis (ALS), Huntington’s disease, sleep medicines, stroke, brain and spinal cord injury, comas, and many other neurological diseases, experienced a 50% decrease in total funding over the 10-year period. A large portion of funding is from 2004, as seen in the large spike in Chart 7 at the beginning of the Neurology section, when a single company raised $250 million, the largest B round in biotech history.
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Amount Invested $588M $302M -49% $889M
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Novel Drug R&D Venture Funding – Psychiatry
Chart 13. Funding of Novel Drug R&D only, 2004-2008 vs 2009-2013, for Psychiatric Diseases.
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Psychiatry 2004-2013
Chart 12. Total venture funding ($M) into companies with lead drug R&D in Psychiatric Disorders, 2004-2013. Left: Novel R&D vs. Drug
venture round.
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Psychiatric diseases include mental disorders such as Schizophrenia, Bipolar Disorder, PTSD, ADHD/ADD, OCD, Depression, Anxiety, and other mood related disorders. Venture funding of companies with lead programs in Psychiatric diseases was just under $0.9 billion over the last 10 years, and accounted for only 2% of total venture capital raised. That is 5x less than Neurology. Furthermore, funding for Psychiatry has dropped over the five-year windows, from over $588 million to less than $302 million (-49%). Novel R&D for this group dropped even more (-56%), from $465 million to $203 million.
There is a still an unmet medical need in many of these disorders, and the funding levels do not point to a strong investment in future breakthroughs. As seen in Chart 12, total dollars raised in a single year can be lower than $50 million, smaller than what some Oncology companies receive in a single financing round. The lack of Preclinical investment suggests there might be relatively few new targets or new approaches to attract early-stage financing.
Schizophrenia & Depression Investment for Schizophrenia-focused companies peaked in 2005, but only involved two companies, and more than half of the total investment was for reformulation development. Almost no funding was found in the four years prior to 2012, explaining the 78% decrease in total funding for Schizophrenia-focused companies, from $181 million to $39 million for the five-year windows. On average only two companies per year received funding with this focus.
Investment in Depression-focused companies was also sparse, with only one to four companies funded per year. As with Schizophrenia, 2005 was a big year for Depression funding, but almost half went into a single company’s C round. Additionally, in 2012, more than half the money went into a company focused on improving an already approved drug. Investment was close to zero from 2008-2011.
The remaining investments (listed as “Other” in Chart 13) similarly accounted for less than four transactions per year, and often far less than $50 million in a given year. This group consists of ADHD/ADD, PTSD, OCD, Bipolar Disorder, Anxiety Disorders, and other mood-related disorders. Again, peak years were often accounted for by a single company investment, and often a post-Series A round.
Mental health disorders are the leading cause of disability in the US. One in four US adults, or 61.5 million people, have been diagnosed with a mental health disorder.4
Avg. # of Co.’s per Year 36 33 -8% 35
Novel Drug R&D Venture Funding – Infectious Diseases
Chart 15. Novel drug R&D funding of Infectious Disease focused companies, 2004-2008 vs. 2009-2013.
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Infectious (all)
Infectious Disease 2004-2013
Chart 14. Total venture funding ($M) into companies with lead drug R&D in Infectious Disease, 2004-2013. Left: Novel R&D vs. Drug
venture round.
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Infectious diseases include viral, bacterial, fungal, and parasitic infections. There is a high demand for novel drugs in these areas to reverse disease progression within patients and to stop the wider spread throughout the population. For antibiotics in particular, there has been a rise in strains resistant to older therapies, making the need for novel drugs highly important.
Venture funding for Infectious Disease totaled $4.6 Billion over the last 10 years, and accounted for 11% of total venture capital raised. However, it has dropped over the five-year windows, from over $2 Billion to less than $1.5 billion (-33%).
The following chart shows novel drug R&D investment for the main subcategories within Infectious Disease. As can be seen in the chart, the majority of this decline is in antiviral (non-vaccine small and large molecule) R&D. When we dig deeper into these companies, we find that HIV and HCV funding has dropped precipitously. Those two areas have experienced a drop of 74% over the funding periods, from $785 million down to just $202 million.
Antimicrobials The antimicrobial space accounted for one third of all Infectious Disease funding over the last five years, and has decreased 19% over the two five-year windows. However, there are some disparities that are important to point out based on data in Chart 16 below. First, the level of Gram positive focused funding has consistently outstripped that of Gram negative. In the most recent period, there was a fivefold difference between funding for Gram positive and Gram negative novel R&D. Both areas have a consistent level of novel R&D investment when comparing the two time frames (2003-2008 vs 2009-2013), with Gram positive funding actually increasing. The lower levels of gram negative strain funding are of particular concern due to the current threat of antibiotic resistance in these strains and the lack of new drugs to combat them. Broad spectrum antibiotic investment actually accounted for much of the funding drop in this space. In fact, there was only one company funded in the last two years with this category as their lead program.
“The GAIN Act has helped incentivize funding into the much needed area of novel antibiotic R&D, and catalyzed the financing of venture backed companies that received FDA approval for new antibiotics in 2014.”
Jim Healy, General Partner, Soffinova Ventures
Novel Drug R&D Venture Funding – Antimicrobials
Chart 16. Novel drug R&D funding of Antimicrobial focused companies, 2004-2008 vs. 2009-2013.
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Antimicrobials (all)
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Novel Drug R&D Venture Funding – Antivirals
Chart 17. Novel drug R&D funding of Antiviral focused companies, 2004-2008 vs. 2009-2013.
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Antivirals Hepatitis C and HIV are some of the few areas where close to 100% of funding went into novel R&D. However, we found a sizable decrease in the five-year window. The large peak in funding in 2004 is mostly split between two companies. Several drugs have been approved since 2004 and the field is largely dominated by larger biopharmaceutical companies.
Funding for other antivirals such as Hepatitis B (HBV), Influenza, cytomegloviris (CMV), and herpes simplex virus (HSV) actually picked up over the last 10 years.
Anti-fungal Within the Anti-fungal space, 60% of all investment was for delivery or reformulation of approved drugs. Only a couple of companies per year were funded in this area and yearly totals for novel drug R&D ranged from $0 to $30 million in most years, save for 2009 when the total reached $70 million.
Vaccines 2004-2013
Chart 18. Total venture funding ($M) into companies with lead drug R&D in Vaccines, 2004-2013. Left: Novel R&D vs. Drug Improvement
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Vaccines The vaccine space within Infectious Disease covers both viral and bacterial targets. Examples from the viral vaccine R&D front include new vaccines against influenza, SARS, RSV, HIV, and Ebola viruses.
Novel vaccine financing was about half that of antivirals or antibacterials in the recent five-year period. Most of the recent financing has been for clinical-stage companies, not preclinical as in prior years.
Cardiovascular
Cardiovascular indications, such as heart failure, Acute Coronary Syndrome, Atherosclerosis, Hypercholesterolemia, and Hypertension received total venture funding of $2.4 Billion over the last 10 years, and accounted for 6% of total venture capital raised. However, funding has dropped 27% over the five-year windows, from over 1.4 billion to less than $1.0 billion.
2004-2008 2009-2013 % Change 2004-2013
Cardiovascular 2004-2013
Chart 19. Total venture funding ($M) into companies with lead drug R&D in Cardiovascular, 2004-2013. Left: Novel R&D vs. Drug
venture round.
Delivery and reformulations accounted for as much as 60% of the funding in Cardiovascular in some years and as little as 15% in others. The bulk of CV funding went toward Heart Failure and Acute Coronary Syndrome. Very few companies and total dollars went into Hypercholesterolemia and Hypertension (only 15% of the total in cardiovascular funding).
An estimated 83.6 million American adults have a cardiovascular disease. By 2030, 44% of the US population is projected to have some form of cardiovascular disease.5
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Endocrine Diseases
Venture funding for Endocrine Diseases, such as Diabetes, reached $2.4 Billion over the last 10 years, and accounted for 6% of total venture capital raised. However, funding has dropped 31% over the five-year windows, from over $1.4 billion to less than $1 billion.
While there has been a large amount of financing for drug improvements in this disease category, novel drug R&D venture funding for Endocrine dropped more than 50%, as seen by the declining blue bars in Chart 20.
2004-2008 2009-2013 % Change 2004-2013
Endocrine 2004-2013
Chart 20. Total venture funding ($M) into companies with lead drug R&D in Endocrine, 2004-2013. Left: Novel R&D vs. Drug
venture round.
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Novel Drug R&D Venture Funding – Endocrine
Chart 21. Novel drug R&D funding of Endocrine focused companies, 2004-2008 vs. 2009-2013.
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Type II Diabetes 2004-2013
Chart 22. Total venture funding ($M) into companies with lead drug R&D in Type II Diabetes, 2004-2013. Left: Novel R&D vs. Drug
venture round.
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Endocrine – Other This category includes contraceptives, growth hormones, osteoporosis-related disorders, Acromegaly, hypogonadism, Menopause, and other hormone-related diseases. Fifty-five percent of investment went to novel R&D over the dataset period. Pre-fiscal crash, $316 million was spent on novel R&D whereas post-crash only $261 million was raised. Peaks in 2006 and 2007 saw about 50% or more of the investments go to improvements for approved drugs.
Type II Diabetes About 30-40% of Endocrine investment is in Type 2 Diabetes. The total amount of novel drug Endocrine investment is almost 10x that for Type I Diabetes-focused companies in both five- year windows. Example of non-novel: Peaks in 2011 and 2012 are financings for delivery technologies of approved drugs with a $150 million C round and a $163 million Series D. These account for 75% and 85% of those two years of Type II Diabetes financing.
Diabetes remains the 7th leading cause of death in the United States6, with more than 29 million people affected by the disease.7
Metabolic Diseases
Metabolic covers a wide range of diseases, from the rare genetic diseases to broader population diseases such as obesity. Total venture funding for the last decade reached $2.2 Billion, or 6% of the total raised during that timeframe. Metabolic funding seems to have experienced the opposite trend as Endocrine over the two five-year windows – Endocrine funding fell 31%, but Metabolic funding rose 25%. This extraordinary divergence can be explained by the sub-indications under each area. For Endocrine, a drop in Type II Diabetes funding of novel drug R&D was the culprit. For Metabolic, the rising interest in genetic diseases explains the increase.
2004-2008 2009-2013 % Change 2004-2013
Metabolic Diseases 2004-2013
Chart 23. Total venture funding ($M) into companies with lead drug R&D in Metabolic, 2004-2013. Left: Novel R&D vs. Drug Improvement
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Novel Drug R&D Venture Funding – Metabolic
Chart 24. Novel drug R&D funding of Metabolic focused companies, 2004-2008 vs. 2009-2013.
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Other Indications 2004-08 2009-13
Obesity The 2004-2008 investment in novel R&D for obesity therapies was $105 million vs $172 million during 2009-2013. The majority of investments (85% in dollar terms) have gone toward novel R&D.
Genetic Disorders This is one of the few areas where 100% of funding went into novel R&D, and also an area well represented in the rare disease section of the report (below). We found a sizable increase in the five-year window – investment jumped from $288 million to $500 million after 2008. There was a large peak in 2012, but 64% of this is explained by two rare disease companies raising B and D rounds prior to going public.
Metabolic – Other This group includes Musculoskeletal diseases, Cachexia, Familial Amyloid Polyneuropathy, Hyperkalemia, and other metabolic disorders. Eighty-five percent of this investment went toward novel R&D funding, which increased from $236 million (2004-2008) to $425 million (2009-2013).
More than one-third, or 78.6 million, of U.S. adults are obese8 and 12.7 million childern ages 2 to 19 are obese.9
Individual orphan diseases affect fewer than 200,000 people in the U.S. each, but taken together are estimated to affect some 30 million people,10 with approximately 50% of them being children with an orphan disease.11
Immunology (non-GI, non-Respiratory)
Immunology covers a set of disease that are primarily of autoimmune origin, such as Rheumatoid Arthritis and Psoriasis. For this section, we excluded immune-based diseases that are covered under the Gastrointestinal (e.g., Crohn’s) and Respiratory (e.g., Asthma) sections below. Total venture capital raised for Immunology was $1.6 billion for the 10-year period, or 4% of the total venture capital raised. For the five-year windows, Immunology funding dropped 22% in funds raised, from $882 million to $685 million.
Investment for Immunology has been jagged, with spikes in 2006 and 2008 followed by massive drops in 2007 and 2011. Most of the funding has been toward novel drug R&D with 10-20 companies per year receiving that funding.
2004-2008 2009-2013 % Change 2004-2013
Immunology 2004-2013
Chart 25. Total venture funding ($M) into companies with lead drug R&D in Immunology (non GI, non-Respiratory), 2004-2013. Left:
Novel R&D vs. Drug Improvement R&D. Right: Total Investment by Phase of R&D and number of companies receiving financing per year
for a specific venture round.
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Novel Drug R&D Venture Funding – Immunology
Chart 26. Novel drug R&D funding of Immunology (non-GI, non-Respiratory) focused companies, 2004-2008 vs. 2009-2013.
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Multiple Indications 2004-08 2009-13
Rheumatoid Arthritis and Psoriasis Companies receiving financing with a Rheumatoid Arthritis (RA) indication as lead product saw novel R&D funding drop from over $200 million to below $100 million for the most recent five five-year window. The peak investment in 2008 went mostly (47%) to a C round for a single company. Additionally, some of the decrease might be explained by successful products being introduced during the last decade.
Since 2004, there have been few companies with a Psoriasis indication as their lead product receiving financing. One possible explanation for this could be that most companies target Rheumatoid Arthritis as the primary indication and Psoriasis as a secondary one; thus, their Psoriasis work is not picked up in the analysis. Furthermore, many new drugs for Psoriasis have come to the market over the past decade.
Immunology – Other This category includes Graves’ Disease, Lupus, Primary Biliary Cirrhosis, Celiac Disease, Gout, and many other diseases. The majority of investment in this space (88%) went towards novel R&D, and the amount has increased over the last five years vs the prior five years.
Psoriasis is the most common autoimmune disease in the country, affecting 7.5 million Americans.12 Rheumatoid Arthritis affects about 1.5 million Americans.13
Gastrointestinal Diseases 2004-2013
Chart 27. Total venture funding ($M) into companies with lead drug R&D in GI, 2004-2013. Left: Novel R&D vs. Drug Improvement R&D.
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Gastrointestinal Diseases
The majority of the Gastrointestinal Diseases category venture funding is split into two main sub-disease areas: Irritable Bowel Syndrome (IBS) and Inflammatory Bowel Disease (IBD), but there are many other diseases that fit into this area. Total venture capital raised for Gastrointestinal Diseases was $1.1 billion over the ten-year period, or 3% of the total venture capital raised for therapeutics. One of the biggest drops of the major disease groups analyzed is found here – a 62% drop in funding from $828 million to $311 million for the two five-year windows.
2004-2008 2009-2013 % Change 2004-2013
Novel Drug R&D Venture Funding – Gastroinestinal
Chart 28. Novel drug R&D funding of Gastrointestinal focused companies, 2004-2008 vs. 2009-2013
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Other Indication 2004-08 2009-13
IBD and IBS The main types of Inflammatory Bowel Disease (IBD) are Crohn’s disease and Ulcerative Colitis (UC). Irritable Bowel Syndrome (IBS) is a non-inflammatory chronic condition affecting the large intestine. Both of these areas, IBD and IBS, show a drop in novel drug R&D funding, as shown in the chart above.
GI – Other This category includes Gastroenterologic disorders, Chronic Idiopathic Constipation, Ulcers, Dyspepsia, Gastroparesis, Exocrine Pancreatic Insufficiency, Liver failure/Cirrhosis, Colon Cleansing/Laxatives, and other GI disorders. This diverse group of companies raised over $100 million for each of the two five-year windows and funding only slightly fell in the second five-year window.
In the United States, there are 60 to 70 million people affected by digestive diseases.14
Respiratory Diseases
Respiratory diseases examined include a number of common diseases such as Asthma, COPD, and Idiopathic Pulmonary Fibrosis (IPF), as well as other diseases such as Cystic Fibrosis, Emphysema, Acute Respiratory Failure, Acute Lung Injury (ALI), Acute Respiratory Distress Syndrome (ARDS), and other respiratory diseases. Total venture capital raised for Respiratory Diseases was $1.4 billion for the ten-year period, or 4% of the total venture capital raised for therapeutics. Funding dropped significantly, from $866 million to $491 million (a change of -43%), between the two five-year windows.
2004-2008 2009-2013 % Change 2004-2013
Respiratory 2004-2013
Chart 29. Total venture funding ($M) into companies with lead drug R&D in Respiratory, 2004-2013. Left: Novel R&D vs. Drug
venture round.
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Respiratory diseases cause 138,000 deaths annually and are the third leading cause of death in the U.S. In children under 1 year of age, approximately one in six deaths are due to lung disease.15
Novel Drug R&D Venture Funding – Respiratory
Chart 30. Novel drug R&D funding of Respiratory focused companies, 2004-2008 vs. 2009-2013. Select sub-indications are shown for
comparison to the total amount raised in the category.
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Respiratory (all)
COPD 2004-08 2009-13
Asthma Looking at novel R&D, $266M was invested in the 2004-2008 period compared to only $60M in the five years post 2008. In 2007, $77 million (57%) was from a single company’s C round.
Asthma 2004-2013
Chart 31. Total venture funding ($M) into companies with lead drug R&D in Asthma, 2004-2013. Left: Novel R&D vs. Drug Improvement
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COPD COPD was one of the few respiratory areas that increased, from below $50 million during 2004-2008 to over $100 million in the five years after 2008.
Respiratory - Other Acute Respiratory Failure, Acute Lung Injury (ALI), Acute Respiratory Distress Syndrome (ARDS), Cystic Fibrosis, Emphysema, Idiopathic Pulmonary Fibrosis (IPF), fall under “other” respiratory diseases. Funding in the 2004-2008 timeframe shows a large amount invested into the “other” category. This was predominantly directed to later-stage companies, and 44% of the money invested in 2004 and more than 60% in 2006 went toward improvements to already approved drugs. Most companies pursuing multiple lead therapies in multiple respiratory areas were found to be delivery companies.
The Hematology category includes Blood Stimulators, Coagulation agents, Anemia, Antithrombotic, Chronic Venous Ulcers, Peripheral Arterial Disease (PAD), Sickle Cell Disease, Iron Overload, Hemophilia, and Neutropenia/ Leukopenia. Some of these diseases are rare, and therefore were also analyzed rare disease section of this report.
2004-2008 2009-2013 % Change 2004-2013
Avg. # of Co.’s per Year 8 8 0 8
Hematology 2004-2013
Chart 32. Total venture funding ($M) into companies with lead drug R&D in Hematology, 2004-2013. Left: Novel R&D vs. Drug
venture round.
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Funding for Hematology has declined since peak the years of 2005 and 2007, when more than $150 million per year went into this area. Almost half of the investment before 2009 were for Blood Stimulators, which dropped thereafter, as did the category as a whole. Novel drug R&D funding dropped from $332 million in 2004-2008 to $139 million in the last five years. In 2005, $117 million out of $148 million went to a single company’s F round. Additionally, in 2007, $125 million out of $129.4 million went to just two companies for late rounds. Other sub- indications actually saw an increase in funding as a group, but the levels were less than $100 million per year when combined.
Ophthalmology
Many of the companies with lead programs in the Ophthalmology space work on macular degeneration but with new biologics platform technologies, such as gene therapy or novel target binding proteins (non-antibody scaffolds). Ophthalmology venture funding totaled $1.7 billion over the last decade, representing 5% of the total venture capital raised. Year-to-year totals are choppy, but investment interest has maintained the $800 million- plus level of funding when comparing the five-year windows before and after the 2008 fiscal crash.
The high degree of novelty over the last decade can be seen in the blue bars in Chart 33. The average number of companies receiving funds per year has increased more than the actual dollar amounts, with 2013 being the highest.
2004-2008 2009-2013 % Change 2004-2013
Ophthalmology 2004-2013
Chart 33. Total venture funding ($M) into companies with lead drug R&D in Ophthalmology, 2004-2013. Left: Novel R&D vs. Drug
venture round.
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Platform
The Platform category contains primarily preclinical-stage companies that have a core technology in creating a diverse set of new molecules. A great example is an antibody-generating platform that can generate antibody drugs for targets across all diseases. Other examples include gene therapy, stem cell therapy, regenerative medicine, nanoparticles, and small molecule diversification methods that generate combinatorial libraries, cyclization of fragments, or covalent linkage inhibitors. Once companies identify a lead product and utilize the majority of their funds for that product, they are relabeled as a product company within a specific disease indication. This explains why nearly all funding for this category is for Preclinical stage companies.
2004-2008 2009-2013 % Change 2004-2013
Platform 2004-2013
Chart 34. Total venture funding ($M) into companies with molecular Platform technologies, 2004-2013. Left: Novel R&D vs. Drug
venture round.
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Overall, Platform start-ups received $2.5 billion in funding over the past decade, representing 6% of the $38 billion of venture financing during the 2004-2013 period. On average, 25 companies per year received financing in this group, placing it near one of the highest in both dollars and companies receiving investment. In terms of both dollars invested and the number of companies funded, the trend is up over the last decade.
Other Diseases
Many other diseases were funded that did not fit within our top 14 categories discussed above. These include Dermatology, Allergy, Musculoskeletal diseases, Osteoarthritis, Otology (ear diseases), Periodontitis, Urology, non-viral liver diseases, fertility drugs, and treatments for side-effects of chemotherapy or radiation. In aggregate, the funding for these diseases accounted for less than 10% of the total for any given year, and 7% for the ten- year period covered by this study. More than 40% of funding in the “Other” group of diseases was split between Dermatology and Renal, with Dermatology accounting for the majority of the delivery development in the form of topical cream formulations of existing drugs.
2004-2008 2009-2013 % Change 2004-2013
Other Disease Areas 2004-2013
Chart 35. Total Investment ($M) into companies that did not fit into the major 14 areas above, 2004-2013 Left: Novel R&D vs. Drug
venture round.
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In contrast to the diverse Platform group, the “Other” category includes many Phase II through Market phase companies, and contains mostly companies focused on improving existing drugs.
Rare Disease According to a recent report, there are 7,000 rare diseases that cumulatively affect 30 million Americans.14 Only 350 therapeutics are approved for these diseases, indicating there are thousands of rare diseases without a treatment or cure. Over the last 10 years, there has been an increase in investment into rare diseases, with the highest amounts (over $500 million/ year) seen recently in 2012 and 2013. As shown below, most funding is directed to clinical trial stage companies, with the exception of 2013 when nearly half of the funding went into Preclinical stage companies.
“We see significant interest in rare diseases as gene therapy technologies mature and generate meaningful clinical data and returns for investors. We are hopeful that advanced gene therapy approaches will deliver products that will dramatically improve patients’ lives.”
Jim Healy, General Partner, Soffinova Ventures
Rare Diseases 2004-2013
Chart 36. Total venture funding ($M) into companies with a lead drug in a rare disease, 2004-2013. Total Investment by Phase of R&D
and Number of companies receiving financing per year for a specific venture round.
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This category includes medicines focused on treating Epidermolysis Bullosa (EB), Hereditary Inclusion Body Myopathy (HIBM), Friedreich’s Ataxia, Primary Hyperoxaluria (PH), Familial Amyloid Polyneuropathy, Spinal Muscular Atrophy, Transthyretin amyloidosis, Hypohidrotic Ectodermal Dysplasia, Pompe disease, Fabry’s disease, von Gierke’s disease, Leber’s Congenital Amaurosis, Muscular Dystrophy (MD), Narcolepsy, Hunter Syndrome, Hurler Syndrome, and Lymphangioleiomyomatosis (LAM). Although many Oncology companies do seek Orphan Drug status for rare cancer indications, we only found a few unique cases where a company’s lead program was for a specific rare cancer. Most Oncology companies analyzed had multiple lead cancer areas and indications often switched from lead to non-lead status from year to year.
Series A Funding Series A funding is the first significant financing round after the smaller “Seed” round, and often involves a syndicate of venture firms that back a new approach to drug development. Tracking the Series A rounds can tell us what areas the most sophisticated venture investors have decided to come together and support amongst a plethora of potential ideas that come across their desks.
In total, $10.7 billion went into Series A over the last 10 years, which is 28% of the $38 billion invested in all rounds. A healthy 82% of Series A money has gone into novel drug discovery over the last 10 years, with the highest amount seen last year.
Series A
Chart 37. Series A venture funding ($M) by Phase and by Innovation Level. As expected more early phase with early financing stage.
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Preclinical-stage companies took in the majority (56%) of Series A venture dollars between 2004-2013, and “early” R&D, as defined as Preclinical to Phase I, made up 74%. Molecular platform companies accounted for 17% of the Series A Preclinical funding and 10% of total Series A rounds. Investment into the Platform group, as shown in the table below (Table 2) rose 66% when comparing the two five-year timeframes.
The volume of first-time Series A investments gives us insight into how widespread the funding is in a given year. Based on this analysis, the peak in initial Series A financings was in 2006, when 89 companies received their first Series A financing. This compares to only 63 in 2013, a near 30% drop from the peak. Interestingly, 2012 was the low point, not 2010 as was the case for total investment dollars overall (Chart 1), with only 55 therapeutics companies receiving their first Series A tranche.
Number of Companies Receiving First Series A Round, 2004-2013
Chart 38. Declining # of New Series A Financing for Drug Development R&D
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Chart 39. Series A venture funding ($M) broken down by disease area.
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Although the number of new companies receiving Series A financing is down, the total dollar amount that is flowing into Series A financing rounds is approaching prior highs. In fact, investment into novel drug R&D reached its highest point in 2013. This also suggests more money per company, as dollars have increased while the number of companies has decreased. Part of this might be explained by the trend in biotech venture to make the Series A financing last longer, so company management is not out searching for the next round of financing shortly after the first large raise. Following the fiscal crisis of 2008, company executives and venture capitalists began to stretch small initial funds to mitigate dependence on later rounds early in development.
As with the overall data for all rounds described earlier in the report, Oncology brings in the bulk of Series A funding, with 24% of the total funding over the last 10 years of A rounds. Neurology had the second highest level of investment (13% of Series A), which was largely due to the boost to novel drug R&D investment. Most of this went into the “Neurology – Other Indication,” a category that includes a diverse group focused on ALS, Huntington’s, and rare CNS disorders.
“With fewer early-stage investors starting companies, Series A financing has evolved over the last decade into a much more selective process.”
Jean-Francois Formela, Senior Partner, Atlas Venture
Venture Dollars Raised ($M)
Disease Area 2004-08 2009-13 2004-08 2009-13 2004-08 2009-13 Change %
Oncology $909 $1,158 $125 $22 $1,034 $1,180 14%
Neurology $174 $458 $525 $256 $699 $713 2%
ID $666 $351 $70 $36 $736 $387 -47%
PLATFORM $354 $612 $40 $40 $394 $652 66%
Other $132 $320 $203 $178 $335 $499 49%
Ophthalmology $298 $316 $96 $43 $394 $359 -9%
CV $263 $222 $158 $56 $421 $278 -34%
Immunology $308 $242 $34 $0 $342 $242 -29%
Respiratory $162 $72 $149 $64 $311 $136 -56%
Metabolic $165 $228 $17 $0 $181 $228 25%
Endocrine $186 $53 $102 $53 $288 $106 -63%
Hematology $150 $130 $10 $31 $160 $161 0.2%
GI $136 $98 $36 $6 $172 $104 -39%
Psychiatry $72 $99 $10 $12 $82 $110 35%
TOTAL $3,976 $4,359 $1,574 $797 $5,550 $5,156 -7%
Table 2. Series A venture funding ($M) broken down by disease area in five year windows.
In contrast to the overall funding, Series A funding shows 7 of 14 disease areas with increases over the five-year windows examined. The major decreases in funding were found in Endocrine (-63%), Respiratory (-56%), Infectious Disease (-47%), GI (-39%), and Cardiovascular (-34%). Similar values were found when looking at changes only in novel drug R&D, except in Neurology and the “Other” categories. Neurology novel drug R&D funding increased 163% (vs. 2% for total Series A), and the “Other” group increased 142% (vs. 49% for total Series A). The 49% jump in the overall “Other” category was influenced in part by investments into women’s health products.
In terms of relative size of venture rounds, the average Series A capital raised was found to be roughly 10x the size of a Seed round, with the average Series A financing totaling $16 million over the last decade compared to $1.5 million for Seed rounds. Subsequent B rounds garnered about $10 million more than Series A, at an average of $25.2 million. Series C rounds, as might be expected, were even larger, at $28.5 million. All money raised after Series C was found to be, on average, $49 million per round. Some companies have actually raised to Series G and beyond, but this is rare in the dataset. Typically, venture backers will seek exit options by at least the C round, depending on the M&A and IPO environment.
Average Series Size
Chart 40. Average amount raised by round (since 2004). “D or Later” includes all subsequent financings beyond the C round.
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Discussion Venture investors vary by fund in terms of what stage of development and what sequence of financing they participate in. Their commitment to the life science sector is influenced by multiple factors that include: 1) the financing environment as experienced by the LPs (Limited Partners), 2) the venture capital perception of unmet medical need based on availability of currently marketed therapies in a given therapeutic area, 3) the exit opportunities via acquisition (i.e., interest from larger pharmaceutical or biotech companies), 4) the exit opportunities available through public markets (Form-10 or traditional IPOs that will be dependent on market conditions), and 5) the regulatory and reimbursement environment overall and within a specific indication.
The first factor (the financing environment) was quite evident in the slowdown following the 2008 financial crisis. Many LPs, such as pension funds, decided to decrease their allocation to venture, with a particular exodus from life science venture funds due to the extensive capital and timeline requirements of groundbreaking R&D (which can total much more than $1 billion and 10 years before a therapy reaches the market). In the data described above, we see the fallout deepening into 2010, when innovative therapeutic venture dollars slipped to the lowest level in over 7 years.
For the second factor (VC perception of unmet medical need), when there are currently available therapies and high hurdles for innovation, more of the R&D funding may find its way into improving already approved drugs. For example, many investments in the area of Pain were found to be in drug improvement rather than in companies developing inhibitors of novel targets. At the other end of the spectrum, in Oncology most of the investment in recent years has been largely in companies developing innovative new drugs, as there is a strong desire to improve upon the current standard of care for cancer patients.
A strong environment for VC exits (whether M&A or IPO) is critical to the maintenance of the funding ecosystem. In the past decade there has consistently been a large company suitor for small biotechs, although the type, stage, and focus of companies acquired has varied. For the public exits, the last decade has been anything but consistent. Only recently, has the IPO window for small private biotechs opened. From 2008-2011, not a single Preclinical or Phase I biotech was able to exit into the public markets. However, since the JOBS Act became law in 2012, we have seen more than 20 Preclinical/Phase I IPOs and more than 130 total biotech IPOs. The current environment of both of these exit options influences the investment decisions at the venture stage.
With respect to the last factor, the regulatory and reimbursement environment, VCs will pull back from areas that are seen as having unfavorable or unpredictable regulatory and reimbursement hurdles. For example, requiring drug developers in certain chronic disease indications to run larger cardiovascular outcome trials after completing pivotal efficacy studies has contributed to a funding exodus of chronic illnesses that affect large populations. This has had some impact on tilting investment over the last few years toward drug R&D for small populations and rare diseases.
All of these factors have been at play over the last decade, as seen in the overall drop in funding into 2010 and the dramatic drop within particular disease areas. Policies that have helped reverse or buffer some of the negative impact from these factors have been critical to maintaining stable funding of the innovation ecosystem. However, for some segments of the biotech sector further policy initiatives are needed.
“The JOBS Act, signed in 2012, has been a key factor in opening capital markets to small innovative biotech companies. The increased access to public markets has already started a favorable feedback effect of capital flowing back into private start-up companies.”
Jonathan Leff, Partner, Deerfield Management
Methodology Data Source Four databases were combined to create the broadest study possible: BioCentury’s BCIQ, Elsevier’s Strategic Transactions Database, EvaluatePharma, and Thomson Reuters’ ThomsonONE. Further, investigation of company R&D and financings was complemented with Factset and SEC filings as well as Fierce Biotech, Xconomy, BiotechGate, and company press releases. Equity investments from 2004-2013 were aggregated, and duplicates and non-drug company financing events were removed. Generics, distribution, and pharmacy companies were also excluded. Cases where private money was raised for the sole purpose of acquiring an existing company were also excluded.
Equity investments in this study are predominantly venture in nature, with some differences at the Seed stage where angel investors, family offices, and other non-venture capital investors have an impact. Additionally, debt financing, bridge loans, government grants, and disease/patient foundation grants were also excluded.
The numbers reported in this report are not inflation adjusted to 2013. However, we did look at inflation adjusted numbers over the 10 year period studied. The overall drop in funding is even more severe when expressed in 2013 dollars: from -21% in this report to -28% adjusting for inflation when comparing the 2004-2008 period with 2009- 2013. For changes in the major disease areas, there is a similar shift: the decreases are slightly larger and the increases are smaller.
Innovation Score For the innovation score, we grouped companies into two categories, novel R&D pursuing a new chemical entity, and R&D that expands the properties, availability, patient experience, etc. of an already-approved chemical entity. In the first bucket, we include in-licensed assets with prior data, such as spin-outs from big pharmaceutical companies. The lead drug for the novel category cannot have had a prior approval for any indication.
The second category includes delivery technologies such as nanotechnology, lipids (micelles), new adjuvants for approved vaccines, extended release and prolonged half-life chemical modifications (conjugates and linkers, including pegylated variants) patches, topical creams, implanted delivery devices, needle-less injections, as well as reformulation of an approved drug, repurposing of an approved drug, nutraceuticals, and medical foods.
Round of Investment Series financings often occur over multiple years as tranche payments. For example, a Series A round can have the sequence of A1, A2, A3 rounds within the same year or in different years. These were accounted for by year such that the accounting is for companies financed per year, not payments/tranches per year. For example, a company with A1, A2, and A3 payments in 2012 would be treated as a single company financing in 2012, not three separate A round financings. If the A1, A2, A3 rounds occurred in 2011, 2012, and 2013, then these would be counted as one A round investment per year. This enables an accurate accounting of breadth of funding on a yearly basis.
Therapeutic Areas and Phase Each financing event was tagged by the company’s lead program disease area and phase of development as of the date of payment. As mentioned above, this is based on the date of actual funding, not commitment to future tranches. For example, large A rounds can be spread out into payments stretching beyond a single year when press releases and major media outlets report a financing event. Each year of funding, for each round, investment was labeled by one of 14 major diseases and by sub-indication - these indications are listed in Appendix Chart A3.
Vaccines include both bacterial and viral vaccines. Thus, all other Infectious Disease categories are for small molecule or large molecule approaches ex-vaccine. Oncology vaccines are tagged as vaccines if a true antigen (peptide often) is being utilized and will have the modality tagged with vaccine instead of large. Thus, Oncology vaccines do not show up under Vaccines within Infectious Disease. This allows us to sort vaccines across all disease areas. “Other” in Infectious Disease refers mainly to anti-parasitic medicines and Head Lice treatments.
Wound healing was placed under Dermatology if directly related to skin injury, but if directly affecting the immune system it is labeled under Immunology. Platform refers to molecular platforms only, not target- or hypothesis- driven platforms. For example, a company focused on the mTOR pathway would not be a platform company, but a company designing bispecific Fab fragments would count as Platform. Strokes involving the brain are classified under Neurology, but if designed for heart stroke in patients, it is labeled as Cardiovascular. Osteoporosis falls under Endocrine, and Osteoarthritis was placed under “Other.” Also under “Other” are Dermatology, Allergy, Musculoskeletal diseases, Osteoarthritis, Otology (ear diseases), Periodontitis, Urology/Genitourinary, non-viral liver diseases, fertility drugs, and treatments for side effects of chemotherapy or radiation.
References 1. Based on analysis of the Dow Jones Venture Source database by Bruce Booth of Atlas Ventures: http://lifescivc.
com/2014/09/early-stage-biotech-venture-scarcity-fitness-fear-and-greed/
3. Alzheimer’s Association, “2014 Alzheimer’s Disease Facts and Figures,” Alzheimer’s & Dementia, Volume 10, Issue 2. http://www.alz.org/downloads/Facts_Figures_2014.pdf
4. “PhRMA: 119 drugs for mental health disorders in R&D,” PharmaTimes. 6 May 2014. http://www.pharmatimes.com/ Article/14-05-06/PhRMA_119_drugs_for_mental_health_disorders_in_R_D.aspx
5. American Heart Association. Heart Disease and Stroke Statistics—2014 Update. AHA Statistical Update Web site.http://circ.ahajournals.org/content/early/2013/12/18/01.cir.0000441139.02102.80.full.pdf
6. http://www.cdc.gov/media/releases/2014/p0610-diabetes-report.html; http://www.cdc.gov/diabetes/pubs/ statsreport14/national-diabetes-report-web.pdf
9. http://www.heart.org/idc/groups/heart-public/@wcm/@sop/@smd/documents/downloadable/ucm_319588.pdf
10. Report to the President on Propelling Innovation in Drug Discovery, Development, and Evaluation. President’s Council of Advisors on Science and Technology. September 2012.
11. http://globalgenes.org/rare-diseases-facts-statistics/
Appendix
Table A1. 10 years of venture investing by disease - $M invested. In the rare case where two different rounds (for example, B and C rounds) were
raised in the same year, this is counted as two seprate company financing events in the same year.
Table A2. Number of companies per year receiving funding for a specific round. In the rare case where two different rounds (for example, B and C
rounds) were raised in the same year, this is counted as two seprate company financing events in the same year.
Average # of Companies/Year
Novel Drug R&D Drug Improvement R&D Total Funding 10 Year Average
Disease Area 2004-08 2009-13 2004-08 2009-13 2004-08 2009-13 2004-2013
Oncology 49 60 8 8 57 68 62
Neurology 22 27 15 14 37 41 39
ID 31 28 5 6 36 33 35
Other 15 16 0 0 23 25 24
Platform 21 23 3 4 24 27 26
CV 15 10 6 7 21 17 19
Endocrine 12 9 6 8 18 17 18
Metabolic 11 12 1 1 12 13 12
Ophthalmology 9 11 3 5 12 16 14
Immunology 14 10 1 1 15 11 13
Respiratory 8 7 3 2 11 9 10
Hematology 7 7 0 1 8 8 8
GI 5 4 4 1 9 5 7
Psychiatry 5 5 1 1 6 6 5
Disease Area 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 10 yr SUM
Oncology $1,032 $689 $680 $1,353 $1,136 $919 $616 $923 $740 $1,042 $9,129
Neurology $989 $473 $481 $493 $453 $532 $314 $184 $322 $375 $4,615
Infectious $460 $458 $522 $596 $435 $452 $323 $375 $171 $345 $4,137
Other $177 $256 $283 $370 $266 $225 $320 $256 $367 $265 $2,785
Platform $201 $227 $360 $208 $180 $221 $250 $141 $286 $369 $2,443
CV $230 $281 $299 $374 $221 $167 $141 $256 $283 $177 $2,429
Endocrine $200 $183 $430 $398 $209 $176 $77 $279 $284 $157 $2,394
Metabolic $176 $173 $288 $239 $93 $162 $176 $241 $371 $265 $2,183
Ophthalmology $106 $105 $174 $285 $138 $196 $92 $216 $107 $275 $1,693
Immunology $163 $67 $265 $77 $310 $157 $152 $57 $148 $171 $1,567
Respiratory $240 $64 $157 $237 $169 $106 $154 $106 $65 $60 $1,358
Hematology $88 $210 $126 $170 $109 $90 $104 $91 $150 $90 $1,228
Gastroinstestinal $131 $146 $216 $128 $207 $39 $67 $66 $87 $52 $1,140
Psychiatry $93 $274 $129 $56 $36 $50 $39 $58 $111 $44 $889
TOTAL $4,286 $3,606 $4,411 $4,984 $3,960 $3,491 $2,826 $3,249 $3,492 $3,686 $37,991
Indication 2004-08 2009-13 2004-08 2009-13 2004-08 2009-13 2004-13 Change %
Oncology - Oncology $3,932 $3,869 $958 $370 $4,890 $4,239 $9,129 -13%
CV - Hypercholesterolemia $50 $78 $19 $58 $70 $136 $206 96%
CV - Hypertension $52 $16 $19 $46 $71 $62 $133 -13%
CV - Other Indication $897 $606 $310 $171 $1,207 $777 $1,984 -36%
CV - Multiple Indications $50 $0 $7 $49 $57 $49 $106 -14%
ID - Antimicrobial g+ $301 $369 $85 $25 $386 $394 $780 2%
ID - Antimicrobial g- $79 $78 $10 $56 $89 $134 $223 51%
ID - Antimicrobial broad $461 $222 $117 $3 $578 $225 $803 -61%
ID - Anti-fungal $66 $114 $85 $34 $151 $148 $298 -2%
ID - Antiviral - other $135 $208 $70 $32 $205 $240 $445 17%
ID - HCV $500 $101 $0 $0 $500 $101 $602 -80%
ID - HIV $285 $101 $0 $2 $285 $102 $387 -64%
ID - Vaccine $238 $267 $11 $48 $249 $315 $564 26%
ID - Other Indication $0 $1 $29 $6 $29 $7 $35 -76%
ID - Multiple Indications $0 $0 $0 $0 $0 $0 $0
Immunology - Arthritis $224 $80 $36 $18 $260 $98 $357 -62%
Immunology - Psoriasis $60 $24 $0 $0 $60 $24 $84 -59%
Immunology - Other Indication $238 $362 $40 $62 $277 $425 $702 53%
Immunology - Multiple Indications $256 $138 $30 $0 $286 $138 $424 -52%
Endocrine - T2D $589 $111 $86 $377 $675 $488 $1,163 -28%
Endocrine - T1D $56 $11 $103 $30 $160 $40 $200 -75%
Endocrine - Other Indication $317 $262 $269 $184 $586 $446 $1,032 -24%
Endocrine - Multiple Indications $0 $0 $0 $0 $0 $0 $0
Metabolic - Obesity $95 $172 $76 $0 $171 $172 $343 0%
Metabolic - Genetic Disorder $288 $595 $0 $0 $288 $595 $883 107%
Metabolic - Other Indication $236 $425 $21 $23 $257 $448 $704 74%
Metabolic - Multiple Indications $253 $0 $0 $0 $253 $0 $253 -100%
Psychiatry - Schizophrenia $129 $39 $52 $0 $181 $39 $220 -78%
Psychiatry - Depression $132 $108 $21 $43 $152 $151 $304 -1%
Psychiatry - Other Indication $205 $55 $50 $56 $255 $111 $366 -56%
Psychiatry - Multiple Indications $0 $0 $0 $0 $0 $0 $0
Chart A3. Average amount raised by round (since 2003). “D or Later” includes all subsequent financings beyond the C round.
Indication 2004-08 2009-13 2004-08 2009-13 2004-08 2009-13 2004-13 Change %
Neurology - Pain $323 $237 $719 $495 $1,042 $732 $1,774 -30%
Neurology - Parkinson's $103 $27 $0 $62 $103 $89 $192 -14%
Neurology - Alzheimer's $149 $211 $35 $4 $184 $215 $399 17%
Neurology - MS $362 $78 $21 $11 $384 $88 $472 -77%
Neurology - Other Indication $602 $388 $347 $91 $950 $478 $1,428 -50%
Neurology - Multiple Indications $87 $51 $139 $73 $226 $124 $350 -45%
Respiratory - Asthma $266 $71 $32 $29 $298 $101 $399 -66%
Respiratory - COPD $66 $142 $6 $60 $72 $202 $275 180%
Respiratory - Other Indication $264 $139 $220 $1 $484 $140 $624 -71%
Respiratory - Multiple Indications $0 $0 $12 $49 $12 $49 $61 306%
Hematology - Blood Stimulator $332 $139 $0 $4 $332 $143 $475 -57%
Hematology - Coagulation $79 $40 $30 $25 $110 $65 $175 -41%
Hematology - Other Indication $253 $281 $0 $30 $253 $311 $564 23%
Hematology - Multiple Indications $9 $6 $0 $0 $9 $6 $15 -30%
GI - IBS $325 $142 $56 $0 $380 $142 $523 -63%
GI - GERD $0 $0 $90 $0 $90 $0 $90 -100%
GI - Crohn's $107 $16 $85 $0 $191 $16 $207 -92%
GI - Ulcerative Colitis $10 $14 $4 $6 $14 $20 $34 40%
GI - Other Indication $140 $127 $12 $6 $152 $133 $285 -13%
GI - Multiple Indications $0 $0 $0 $1 $0 $1 $1
Ophthalmology $633 $715 $175 $170 $807 $885 $1,693 10%
PLATFORM $1,095 $1,150 $81 $116 $1,176 $1,266 $2,443 8%
Other - Allergy $31 $12 $0 $0 $31 $12 $43 -60%
Other - Dermatology $132 $266 $97 $139 $229 $405 $634 77%
Other - Renal $310 $195 $0 $105 $310 $300 $610 -3%
Other - Chemo/Rad side effects $87 $133 $0 $0 $87 $133 $220 53%
Other - Other Indication $222 $260 $124 $91 $346 $351 $697 2%
Other - Multiple Indications $155 $81 $195 $150 $350 $232 $581 -34%
Chart A3 – Continued. Average amount raised by round (since 2003). “D or Later” includes all subsequent financings beyond the C round.
Authors David Thomas, CFA Director, Industry Research & Analysis Biotechnology Industry Organization (BIO)
Chad Wessel Manager, Industry Research & Policy Analysis Biotechnology Industry Organization (BIO)
Acknowledgements We would like to acknowledge BIO’s Emerging Companies Section staff for their review and contributions to this report: Charles Crain, Shelly Mui-Lipnik, Matt Stross, Aqila Zafar.
About BIO The Biotechnology Industry Organization (BIO) is the world’s largest trade association representing biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and in more than 30 other nations. BIO members are involved in the research and development of innovative healthcare, agricultural, industrial and environmental biotechnology products. BIO also produces the BIO International Convention, the world’s largest gathering of the biotechnology industry, along with industry-leading investor and partnering meetings held around the world. BIOtechNOW is BIO’s blog chronicling “innovations transforming our world” and the BIO Newsletter is the organization’s bi-weekly email newsletter. More information on BIO and the biotechnology industry can be found at www.bio.org.

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