Finance Watch: 3Q Biopharma Venture Capital Financings Fell From 2Q Spike

VC deals totaled $8.3bn in the first half of 2019, but the year's total rose to just $11.5bn at the end of September, reflecting only a $3.2bn third quarter gain. Among recent financings, Cygnal emerged from stealth mode with $65m invested to date.

This year's venture capital total as of the third quarter shows that money raised by biopharmaceutical companies is on a rollercoaster ride in 2019, according to the latest Venture Monitor report from Pitchbook and the National Venture Capital Association (NVCA).

Pitchbook and NVCA reported earlier this year that biopharma companies raised $2.2bn in the first quarter and $8.3bn in the first half of 2019, meaning that VC investment in the sector surged in the second quarter with $6.2bn raised by drug developers. (Also see "Finance Watch: High Value Of Exits Keep Biopharma VC Deals At Near-Record Levels" - Scrip, 19 Jul, 2019.) The $11.5bn total for the first nine months of the year means that biopharma firms raised $3.3bn in the third quarter – a steep drop from the prior quarter, but still above the first quarter total.

What could be driving this decline? Initial public offerings slowed considerably over the summer, perhaps making venture capital investors wary of putting more money into private companies that may not be able to go public for a while. Biopharma companies that went public in the US in 2019 produced a negative average return for IPO investors by the end of the third quarter.

As in the second quarter, the third quarter Venture Monitor report noted that VC exits – particularly via IPOs – continue to drive venture investment across industries. And despite declining valuations for newly public companies and general stock market woes, investment in IPOs will continue for select opportunities.

"Public markets still appear to be a viable exit route for high-growth startups – both in tech and life sciences – and there continues to be demand for such companies among public market investors looking for significant growth opportunities, especially for companies featuring sustainable business models and strong unit economics," the Pitchbook/NVCA report said.

Good news for biopharma companies that may not be looking to go public in the near term is that venture capital investment is largely concentrated in early-stage firms. Also, the number of drug developers that are raising VC cash hasn't dropped off from 2018 levels.

The Venture Monitor shows that 808 biopharma firms raised $19bn last year, which was a record-breaking dollar amount, with an average deal size of $25.6m. With 609 deals totaling $11.5bn so far this year, the report notes that 2019 is on track to match 2018 in terms of the number of drug developers raising cash, though the average deal size this year has dropped to $21.2m.

Despite the decline in deal size, the number of mega-rounds – in which companies raise $100m or more in a single VC round – could surpass last year's total of 36 mega-deals. Thirty companies have raised $100m or more through 30 September for an average of 10 per quarter in 2019 versus the quarterly average of nine mega-rounds in 2018.

No Mega-Deals Yet In The Fourth Quarter

The first week and a half of October has yielded no biopharma VC financings of $100m or more in the fourth quarter, however. Tenaya Therapeutics Inc. came close with a $92m series B round announced on 3 October to fund its development of three different platforms for the treatment of heart disease.

European companies also started the fourth quarter off with some significant VC deals, including the UK-based start-up MiroBio, which launched with £27m ($34m) to fund its immunotherapy programs. (Also see "New UK Biotech MiroBio Raises $34m For Autoimmune Disease Research" - Scrip, 8 Oct, 2019.) 

Also, Flagship Pioneering, the investment firm and start-up creator with more than $3bn under management, recently unveiled another drug developer incubated in its Flagship Labs – Cygnal Therapeutics, which has raised $65m to date. Flagship has been on a company formation spree after raising multiple funds over the past few years, including the launch of Omega Therapeutics in September. (Also see "Omega Therapeutics Looks To Address Disease By Tuning Genomic Regulators" - Scrip, 24 Sep, 2019.) 

Flagship also raised a new $824m fund in March to support life science companies it launched previously. (Also see "Finance Watch: Flagship Raises $824m To Speed Growth Of Its Portfolio Companies" - Scrip, 22 Mar, 2019.) The firm's $618m fund raised at the end of 2017 was meant to back new start-ups. (Also see "Finance Watch: Happy Holidays For Flagship With A New $618m Fund" - Scrip, 21 Dec, 2017.) 

Founder and CEO Noubar Afeyan told Scrip earlier this year that Flagship's portfolio, which largely consists of therapeutics firms, is focused on platform companies rather than single-drug opportunities. (Also see "J.P. Morgan 2019: Biopharma Sentiment Soars As Deal And Financing Optimism Abounds" - Scrip, 14 Jan, 2019.)

That's where Cygnal, which came out of stealth mode on 8 October, comes in. The Cambridge, MA-based company is focused on exoneural biology, based on new understanding of how nerves and neural signaling drive human health and disease, with an initial therapeutic area focus on cancer and inflammatory diseases. These exoneural medicines will target the peripheral nervous system as an active driver of disease.

In other recent financings:

• Gaithersburg, MD-based Arcellx Inc. disclosed an $85m series B round on 3 October to fund its ARC-T + sparX platform and initial product candidates. The company hopes to improve on conventional chimeric antigen receptor T-cell (CAR-T) technologies with therapies that are safer, more effective, longer-lasting and better able to target solid tumors. Its antigen-receptor complex T-cell (ARC-T) therapies are controlled by one or more sparX proteins to more specifically target tumors and kill tumors faster. New investors Aju IB and Quan Capital co-led the Arcellx's series B round with participation by Mirae Asset Venture Investment, Mirae Asset Capital, LG Technology Ventures, JVC Investment Partners and certain funds managed by Clough Capital Partners LP. Prior investors Novo Holdings, SR One Ltd., New Enterprise Associates (NEA) and Takeda Ventures also supported the round.

• With a platform developing off-the-shelf cell therapies for cancer, Menlo Park, CA-based Adicet Bio Inc. said on 2 October that it raised an $80m series B round that attracted several new investors, including the company's partner Regeneron Pharmaceuticals Inc. (Also see "Deal Watch: Roche Aborts But Regeneron, Amgen and Pfizer Sign Up" - Scrip, 8 Aug, 2016.) Other first-time Adicet backers include aMoon2 Fund, [Johnson & Johnson Innovation - JJDC Inc.], OCI Enterprises Inc., KB Investment Co. Ltd., Consensus Business Group, SBI JI Innovation Fund, Samsung Venture Investment Corporation, Handok Inc. and DSC Investment Inc. All prior investors also supported the Series B, including OrbiMed, Novartis Venture Fund and Pontifax. The preclinical company has an allogeneic cell therapy platform that involves reengineered gamma delta T-cells and will use its new venture capital to take its first candidate into the clinic for the treatment of non-Hodgkin's lymphoma. Adicet also is developing T-cell receptor-like monoclonal antibodies (TCRLs) directed against cancer-specific peptide targets in the intracellular proteome. It previously raised a $51m series A round in 2016. (Also see "Kite Founder Jakobovits Raises $51m For Off-The-Shelf Startup Adicet; Aprecia Prints $35m" - Scrip, 27 Jan, 2016.)

• Seattle-based Icosavax Inc. launched on 3 October with $51m in series A funding and plans to use the proceeds to advance its first vaccine candidate – IVX-121 for the prevention of respiratory syncytial virus (RSV) in older adults – through Phase Ib clinical trials. Icosavax licensed its computationally designed self-assembling virus-like particle (VLP) technology from the Institute for Protein Design at the University of Washington School of Medicine. The technology platform aims to make VLP-based vaccines for antigens that haven't been effectively targeted by other VLP-based vaccine technologies. Qiming Venture Partners USA led Icosavax's series A round, which also was backed by Adams Street Partners, Sanofi Ventures, NanoDimension and the company's seed investors.

• Sofinnova Investments and venBio Partners led a $37m series A round that Aeovian Pharmaceuticals Inc. announced on 3 October; Apollo Health Ventures and Evotec SE also participated in the round. San Francisco-based Aeovian has a proprietary technology platform and pipeline of therapeutic candidates that selectively modulate the mTOR pathway, inhibiting mTORC1 without touching mTOC2, the inhibition of which is associated with metabolic and immune function side effects. The company will use its series A proceeds to develop its lead drug candidate AE116 from preclinical through clinical proof-of-concept studies in the treatment of a rare, undisclosed central nervous system (CNS) disease. Aeovian is focused on rare and age-related diseases and licensed some of the technology for its platform from the Buck Institute for Research on Aging in nearby Novato, CA.

• Cambridge, MA-based Elicio Therapeutics revealed a $33m series B round on 2 October barely more than six months after it announced a $30m series A. (Also see "Finance Watch: Arteaus Comes Full Circle As Investors Monetize Emgality Royalties" - Scrip, 1 Apr, 2019.) Elicio said its international base of investors – including Clal Biotechnology Industries, Livzon Pharmaceutical Group Inc. and Efung Capital – expanded with this new financing. The company is developing lymph node-targeted immuno-therapies, such as lead Amphiphile vaccine candidate ELI-002, which targets the seven KRAS mutations that drive 99% of mKRAS-driven cancers that are found in about 25% of solid tumors. Elicio plans to start a Phase I trial for ELI-002 in pancreatic cancer during the first half of 2020 with initial data in the second half of 2020. The company's Amphiphile vaccines are directed to the lymphatic system where they are taken up by antigen-presenting cells as a means of activating native and engineered T-cells.

• Cancer-focused STipe Therapeutics in Aarhus, Denmark launched on 29 September with €20m ($22m) to develop first-in-class drugs that target intracellular protein-protein interactions of the stimulator of interferon genes (STING) pathway; the company was spun out of Aarhus University. Novo Holdings and Arix Bioscience co-led the series A round with participation from Wellington Partners Life Science V Fund and Sunstone Life Science Ventures AS.

• Bridgewater, NJ-based Nevakar Inc., which is focused on ophthalmic and injectable therapies approved through the 505(b)2 regulatory pathway in the US, announced another product financing agreement on 7 October, this time with HIG Capital Partners LP, to support the continued development of five sterile injectable products. The company previously revealed a $50m product financing agreement in June with NovaQuest Capital Management LLC. (Also see "Finance Watch: Polaris Piles On As Multiple Life Science VCs Raise New Funds" - Scrip, 19 Jun, 2019.) Endo Pharmaceuticals Inc., though its Par Pharmaceutical Inc. business, has the rights to launch and distribute Nevakar's five specialty injectables upon US Food and Drug Administration approval; one product is under review at the agency currently. (Also see "Deal Watch, Licensing Focus: Roche, Sanofi Exit Ongoing Anticalin Development Efforts With Pieris" - Scrip, 16 Aug, 2018.)

• ImmunoMolecular Therapeutics (IM Therapeutics) in Aurora, CO and Boston disclosed a $10m series A financing on 9 October co-led by the Juvenile Diabetes Research Foundation's JDRF T1D Fund and Morningside Ventures with participation from the Colorado University Healthcare Innovation Fund. IM Therapeutics is developing personalized therapies for autoimmune diseases and will use the series A proceeds to advance its human leukocyte antigen (HLA)-targeted discovery platform and develop its lead drug candidate IMT-002 in type 1 diabetes. The technology platform is based on research at the Barbara Davis Center for Diabetes, University of Colorado, showing that blocking certain HLA gene variants blocks the corresponding autoimmune response. JDRF funded a now-completed Phase Ib trial of IMT-002 in newly diagnosed type 1 diabetes patients with an HLA DQ8 variant. IM Therapeutics will advance the oral drug in this indication and explore HLA blockade in additional autoimmune disorders, such as celiac disease.

• Gaithersburg, MD-based [Adaptive Phage Therapeutics Inc.] said on 9 October that it closed an oversubscribed $7m funding round to fund Phase II clinical trials for its PhageBank therapy in the treatment of antibiotic-resistant bacterial infections. The company, which licensed the technology from the US Department of Defense, has provided its phages – viruses that kill bacteria – for the treatment of about 20 patients under compassionate use protocols. The phages are matched to patients based on the pathogen driving their infections.

• ElevateBio emerged in May with $150m to build a centralized research and development facilities and manufacturing capabilities that will serve multiple subsidiaries developing cell and gene therapies. (Also see "ElevateBio Brings Centralized Model To Cell And Gene Therapy" - Scrip, 13 May, 2019.) Soon after, it announced AlloVir Inc. as the first of its subsidiary companies, which raised $120m in series B capital to advance allogeneic virus-specific T-cell therapies. (Also see "ElevateBio Announces AlloVir As First Spoke In Its Cell And Gene Therapy Hub" - Scrip, 23 May, 2019.) Now, ElevateBio has launched Cambridge, MA-based HighPassBio to develop targeted T-cell immunotherapies based on research conducted at Fred Hutchinson Cancer Research Center, the parent company announced on 1 October. HighPassBio's lead program is an engineered T-cell receptor (TCR) T-cell therapy for HA-1 expressing tumors that is designed to treat and prevent leukemia relapse following hematopoietic stem cell transplant; a Phase I trial is under way. The company's financing to date was not disclosed.

• Atlas Venture co-founded and incubated Korro Bio Inc. in Cambridge, MA, which officially launched on 7 October. Atlas and NEA invested undisclosed sums in the one-year-old start-up, which is developing RNA-editing technology that is designed to be more efficient and selective than current gene-editing technologies while overcoming delivery challenges. The Korro Bio platform is based on research conducted by Josh Rosenthal from the Marine Biological Laboratory of Massachusetts in Woods Hole, MA, an affiliate of the University of Chicago.