The Biotech 70 – Why biotech is attracting so much family capital

Some of the smartest families in the room are betting on a bright future for biotech despite a sharp dip in confidence elsewhere in other venture capital sectors.

According to Bruce Booth, partner at Atlas Venture: “I’ve not heard of a single financing that has fallen apart in the private biotech ecosystem due concerns about Covid.”

He noted $5.5 billion was raised for 117 biotech VC fundings in the first quarter, the largest in US history. And the momentum has continued into April: “Every investor is showing up and doing their part.” In other sectors, analysts say, deals worth a total of $20 billion have fallen away.

An adviser in a recent biotech VC raising said: “Our team was concerned about the impact of the market fall, but it barely moved the numbers.” 

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According to Joshua Chao, a Pitchbook analyst, the coronavirus pandemic means biotech VC with strengths in R&D are “well positioned to see significant upside.”

One of the latest $45 million fund raisings is by Cerevance whose therapies have potential to treat dementia. GV, formerly Google Ventures; Jim Tananbaum’s Foresite Capital and Bill & Melinda Gates Foundation invested.

Pic Therapeutics has raised $5 million in seed finance for potential cancer treatments from Advent Life Sciences and Belinda Termeer (Termeer Family Office), widow to Henri Termeer, former CEO at Genzyme. OneThree, an AI therapy platform, has raised $2.5 million of seed finance from Ben Sun’s Primary Venture and Meridian Street Capital. 

In March, Joe Lewis’ Boxer Capital, part of his investment office, Tavistock Group, had led a $60 million funding for Tango Therapeutics. In early April, Boxer completed a $125 million funding for iTeos Therapeutics. One backer is a private investment office called Curative Ventures, backed by healthcare specialist Bronson Crouch. Another is Invus, a private equity firm/family office backed by Belgian billionaire Eric Wittouck. 

Boxer has also raised $80 million for Pandion Therapeutics, backed by Roche’s venture capital arm.

Kallyope is developing therapies which treat illness through the gut. It has raised $112 million from the venture capital arm of Two Sigma Investments, plus Euclidean Capital, the family office of James Simons, founder of Renaissance Technologies.  

Shortly before, David Shaw, founder of DE Shaw, popped up as a subscriber to a $230 million fund raised by Schrödinger, which builds compounds at molecular level. David Shaw also leads a research business studying biochemistry applications.

Two Sigma, Renaissance and DE Shaw run some of the world’s top-performing hedge fund strategies capable of using powerful computers to spot market pricing anomalies in a sea of data.

The dynamic trio have realised big data and AI applications can now be used to interpret, and cure, ailments. VC biotech specialists like Boxer Capital, Casdin, Topspin, Lightstone Ventures, Foresite, OrbiMed, RA Capital, Polaris Partners and Illumina also harness data expertise to find support.

The mapping of the human genome has produced a route map for them to follow. Wealthy investors know effective cures have the potential to deliver vast returns to investors.

They can be attracted to treatments which can help them live longer, better, lives. They can also be attracted to biotech for altruistic reasons, particularly where the nextgen are involved in decisions to commit. Endowments are also providing funds.

The coronavirus crisis has demonstrated the scale of money which governments, and investors, can throw at pandemic relief.

In early March, Family Capital pointed out Moderna Therapeutics was developing a potential cure.  The US Government has now stepped in and agreed to provide funding worth $480 million. The shares have risen 80% over the period.  

Euclidean has backed a $20 million fund raiser by Codagenix in January to fund a coronavirus cure. Simons now owns 25% of its stock. Start up accelerators Y Combinator and 1517 have voiced determination to find new scientific discoveries.

CureVac led by SAP co-founder Dietmar Hopp, and backed by Friedrich von Bohlen, a descendent of the Krupp family, has looked to the German government for support. The Bill & Melinda Gates Foundation has funded its research. 

China has found money for possible cures backed by wealthy state-approved tycoons in charge of corporations. CanSino Biologics went one better with early backing from the Chinese red army.

Analysts warn it can be challenging to back winners as pandemics arrive and disappear at great speed and competition flourishes. 

According to Polar Capital, there were more than 200 clinical trials in progress in mid-April. 

Pitchbook’s Chao points to problems with potential cures for Sars in 2003 and Mers in 2012: “Companies that began developing and testing…quickly found themselves to be out of funding when the outbreaks spontaneously disappeared.”

Global analytics firm Clarivate has estimated that Moderna only has a 5% chance of success with its coronavirus cure. It says the time window for approval would be 5.2 years. Biotech is renowned for its burning cash, due to high research costs and capital expenditure.  

It is not unknown for ventures to run out of money before their drugs are approved. Investors often get anxious over delays as was the case with Woodford Investment Management’s failed attempt to breathe life into UK biotech research.

Developments in genome mapping led an exuberant return of 264% from the iShares biotech ETF over ten years, although a five-year fall of -4.9% reflects the realisation that hard work to produce applications is needed. The dispersion between success and failure can be massive.

But hope springs eternal. Blackstone has exchanged a $2 billion debt and equity package for a share in royalties with listed Alynlam, which has a treatment for high cholesterol.

Keros Therapeutics, backed by Forsite, plus Apple’s first VC backer, Venrock, are seeking to raise a $96 million in an IPO for blood therapy. Biopharma company Oric Pharmaceutical is expected to raise $75 million through an IPO. And other biotech companies are getting ready to follow suit.