Dive Brief:
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Venture capital activity in biotechnology is undergoing a “recalibration towards pre-pandemic investment norms,” according to a new quarterly report from Pitchbook that tracks global funding and dealmaking in the sector.
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Pitchbook projects there will be about 840 venture deals totaling $24 billion by the end of the year, a steep decline from the “high-water marks” reached between 2020 and 2022. Initial public offering and acquisition totals fell as well, with 55 IPOs and 29 buyouts expected globally by the end of 2023, the report said.
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The findings suggest a “strategic shift” among biopharma investors, with venture firms gravitating towards fewer, but more sizable deals. There is now a higher bar to secure funds, a standard that Pitchbook described as favoring “proven leadership and innovative potential.”
Dive Insight:
The biotech sector’s shake out has gone on for a couple years now. IPOs are no longer the given they once were and venture funding is more challenging to secure.
According to BioPharma Dive data, just 20 biotechs have gone public in the U.S. so far in 2023, a total that, if it holds over the next few weeks, would be the lowest in at least six years. The funding drought has affected a number of high-profile startups and young biotechs. In recent weeks, Locanabio, Resonance Medicine and ReNAgade Bio have reportedly cut jobs or shut down as investors have tightened their belts.
Pitchbook’s report helps capture those trends more broadly, with the data it collects encompassing the global venture capital ecosystem. Still, the findings paint a similar picture of steady decline since the sector’s 2021 peak.
That year, 200 IPO and M&A deals produced about $86 billion in returns for investors. But those totals have fallen ever since, plummeting to around $23 billion in 2022 and dropping even further this year. The greatest loss has been seen on the IPO front, as offerings are expected to be down 71% from their recent highs, according to the report.
The report’s author, senior analyst Kazi Helal, wrote that these numbers are leading venture firms to pivot towards larger and “potentially more stable investments.” More firms are waiting to find the best time to take their companies public, or planning exits from their investments to help raise new funds.
“In this climate, strategic patience emerges as a key virtue,” Helal wrote.
Still, there are some positive signs. Should Pitchbook’s projections bear out, deal totals may modestly rise in the fourth quarter, contrasting with the recent downward trend in fundings.