396 financing events US $13.9 billion! Small retreat of biopharmaceutical risk financing

Original In 2019, the financing environment for start-up pharmaceutical companies has cooled, but this is not due to lack of funds, but may be related to private investors' concerns about the long-term impact of capital surplus However, although the financing environment has cooled, the overall financing situation of the biopharmaceutical industry last year has not been greatly affected According to Evaluate According to Pharma data, in terms of financing scale, the total investment amount of biopharmaceutical industry last year reached US $13.9 billion, although compared with 2018, the average financing amount in 2019 is lower than its peak, but it is still at a high level of US $36.7 million; in terms of financing quantity, there were 396 financing events in biopharmaceutical industry last year, although this is the first time since 2010 The number of sub financing has dropped below 400, but in terms of the number of large-scale financing, the frequency of those financing events with the amount of more than 100 million has hardly slowed down Figure 1: venture capital of biopharmaceutical industry in 2015-2019 (only focusing on pharmaceutical manufacturers, excluding medical technology, diagnostic technology and genomics, the same below) Source: evaluatepharma, Zhongkang Industrial Capital Research Center Figure 2: Global biopharmaceutical venture capital in 2015-2019 Source: evaluatepharma, Zhongkang Industrial Capital Research Center From this point of view, funds are more and more obviously concentrated in the hands of fewer and fewer start-ups The concentration of capital reflects the transformation of an investment strategy, and its impact on venture capital companies is gradually emerging In 2019, the median time of venture capital companies from investing in a pharmaceutical company to exiting by M & a dropped significantly In addition, according to historical data, the median time of their exit by IPO was shorter than that of their exit by M & A, while the median time of their exit by IPO in 2019 also decreased slightly Of course, the latter is influenced by the acceptability of the stock market In addition, it is expected that an important swing factor in the venture capital industry this year is the public's acceptance of some high-risk products Chart 3: time from investment in pharmaceutical enterprises to exit of venture capital companies Source: evaluatepharma, Zhongkang Industrial Capital Research Center In terms of M & A alone, the round of M & A in the private sector is increasingly driven by the segmented transaction structure According to the evaluation data of another pharmaceutical company released by vantage, the proportion of private M & A transactions using contingent payment mechanism (referring to a contract to adjust the payment according to the future performance of the target assets in order to solve the valuation difference between the buyer and the seller in the M & A transactions) jumped to nearly 60%, much higher than that of private M & A transactions in 2019 Two years ago However, with the valuation of the subject matter in many treatment areas, venture investors have no choice but to accept such terms In addition, the assessment data highlights another potential trend of concern related to the venture capital industry: the number of private acquisitions in the biopharmaceutical sector, both in absolute terms and as a percentage of all transactions, has declined significantly over the past five years On the one hand, there is no need to sell down because those enterprises supported by venture capital are currently well funded; on the other hand, in the public transactions of some listed companies, their venture investors may retain part of their rights and interests in the merger and acquisition, such as synthorx or armo biosciences Figure 4: number of private and listed companies acquired in biopharmaceutical sector in 2015-2019 Source: evaluatepharma, Zhongkang Industrial Capital Research Center And as investor consortia grow in size, each acquisition is likely to benefit more investors However, while the number of risk financing is declining, the decrease of private transactions is also a trend worthy of attention Of course, on the other hand, this is a huge advantage for venture capital: whether in large pharmaceutical companies or other fields, the companies in their portfolio have sufficient buyers and partners For example, in recent years, some large biotechnology companies lack of product pipelines, which has spawned a group of cash rich acquirers Clearly, there are many limited partners - venture capital fund investors - who are willing to spend a lot of money on biopharmaceutics In some cases, this excess capital has led to an astonishing valuation of the subject matter This undoubtedly raises unreasonable expectations in many aspects In addition, the question of whether the decline in the number of start-ups is important has yet to be answered However, it is clear that these are related to the vigorous development of venture capital business, and the prevailing mantra seems to be: if you've got it, spend it.