Biopharma's "unprecedented opportunity"
It’s a rough time for investors trying to return capital to their LPs. According to a recent Sifted survey, 56% of European VCs haven’t given them a dime in the last 12 months.
And it’s no wonder. The IPO market is at a standstill, valuations have tumbled and M&A has dipped significantly.
But not every sector is on a comedown; investors on the hunt for exits could do worse than look at the biopharma sector — which investors tell Sifted is having a moment.
M&A value in the sector hit $221bn in 2023, according to Pitchbook data — almost on par with 2021’s figure and nearly double what it was last year. Investors tell me they expect M&A activity in the space to go up and to the right in the coming years.
One of the reasons is that a slew of pharmaceutical companies are in a pickle. They’re approaching a “patent cliff” by 2030 — which will see a number of key, revenue-driving drug patents expire, opening up the market for anyone to make them. Some estimate that $200bn in annual revenue could evaporate overnight.
That means they’re on the lookout for ways to bolster their drug pipelines — and one way to do that effectively is to acquire startups that have already begun work on new pharmaceutical products.
Christoph Massner, principal at German VC Earlybird, tells Sifted that this opens up “loads more opportunities” for startups to exit in the coming years. Earlybird has just announced a close of €173m for its second healthtech fund, about half of which will be splashed on the biopharma sector. It’s an “unprecedented opportunity”, Massner says.
Bountiful exit opportunities aren’t the only boon for biopharma startups right now either. Pharmaceutical companies have become “far more open” to adopting new tech into their value chains than they were a few years ago, says William McQuillan, partner at Frontline Ventures.
It means that the time it takes for startups to sell to or partner with pharma has dropped significantly, allowing them to become revenue generating quicker, he adds. “[Lead time to sell into pharma] has dropped to at least half if not a third [of what it was five years ago].”
There have also been some strong signals of the appetite pharma companies have to use startups’ tech in the rapidly growing field of AI-driven drug discovery.
Several chunky deals have been signed recently, including Alphabet’s drug discovery startup Isomorphic Labs’ deal with Eli Lilly and Novartis, which could be worth $3bn, and French biotech Aqemia’s $140m deal with Sanofi, which will see the startup tasked with identifying molecules that can address diseases that are of interest to the French pharma giant.
VCs have taken those signals as a green light to funnel money into the sector. Across 2023, European biotech startups raised $5.7bn, according to Dealroom — just shy of the $6.2bn picked up in 2022. That's a far shorter drop than European tech funding as a whole, which fell from $98.6bn to $61.8bn over the same period.
Just 46 days into 2024, funding in the sector has already hit $1.1bn. If that’s anything to go by, we could be in for a bumper year.
I also want to hear from you. Do you agree? Are pharma companies sniffing around your portfolio companies? Is 2024 set to be a big year for biotech M&A? And who are the startups to watch? Email me.
— Kai Nicol-Schwarz, reporter
