Canaan Has Capital For Start-Ups With Eye On New Twists On Traditional Modalities In Pharma
Executive Summary
VC partner Colleen Cuffaro talked to Scrip about how the investment firm plans to direct investment in biopharma and raising capital in a challenging environment.
Canaan Partners will invest $650m in health care and technology start-ups as part of a new, oversubscribed fund called Canaan XIII, the VC firm announced on 6 April. About 35% of the money, which will be dedicated to entrepreneurs seeking seed and series A financing, will be devoted to investment in biopharma.
An additional $200m of commitments is available to existing portfolio companies across all of Canaan’s active funds, with a similar percentage dedicated to the sector.
The news of new capital coming into biopharma is a boost for biotechs during a downturn in the market and when the outlook for financing has been bleak. The recent collapse of Silicon Valley Bank heightened the already darkened mood around venture capital investment, though despite the initial shock, investors do not anticipate the bank’s collapse will have long-term effects on biopharma. (Also see "Is SVB Failure A Sign Of More Uncertainty On The Horizon?" - Scrip, 21 Mar, 2023.)
Canaan partner Colleen Cuffaro attributed the VC firm’s latest raise to its lengthy track record and loyal investor community.
“We were very fortunate that it was a pretty efficient fundraising process,” she said in an interview. “We are attributing it largely to our 35-year history. The majority of our [limited partners] have been with us for a very long time and are coming back after numerous funds, so it’s that long history of performance where they have seen us perform in both up and down markets.”
In terms of pharma investment, Canaan will dedicate capital to new companies across a range of therapeutic areas and modalities. Oncology, immunology and neurology will be areas of focus along with cardiology and respiratory. Genetically targeted medicines are another area of interest Canaan continues to evaluate.
“We tend to favor more of the traditional formats of small molecules, biologics and protein-based therapeutics, and tend to see a little bit less on the cell and gene therapy areas,” Cuffaro said. “We continue to revisit those areas, [but] the majority of our investment will be in those tried-and-true modalities.”
Nonetheless, she said Canaan will continue to emphasize new approaches and technologies within those more traditional modalities. “What we do love is new twists on those modalities,” she said.
She pointed to examples of Canaan’s previous investments, including companies like Arvinas, Inc., which is developing a portfolio of protein degraders and went public in 2018; Arrakis Therapeutics, which is developing RNA-targeted small molecules; and Halda Therapeutics, which recently emerged from stealth mode, developing a novel class of cancer therapies called RIPTAC (Regulated Induced Proximity Targeting Chimeras) therapeutics. (Also see "Finance Watch: Founder-Friendly Curie.Bio Launches With $520m To Seed, Support New Companies" - Scrip, 16 Feb, 2023.)
Renewed Interest In Cardiovascular
As far as therapeutic areas of interest for investment, Cuffaro said Canaan tries to keep its portfolio companies diversified.
“I do expect to make investment in oncology and rare disease, as these are areas we are continuing to see exciting new technologies and assets emerge, but I also am witnessing a shift back to more common diseases like cardiovascular,” she said.
Renewed interest from large pharmaceutical companies in cardiovascular disease is trickling through the ecosystem and driving earlier-stage investment in the area. Big pharma interest gives VC investors more confidence to make those bets, she said.
Several big pharma companies have expressed renewed interest in the therapeutic area as new technologies have emerged, after many years of deemphasizing an area of the market that has been viewed as expensive and competitive. Merck & Co., Inc., for example, recently outlined a strategy to investors to generate $10bn in revenues from new cardiovascular medicines by the mid-2030s. (Also see "Merck & Co Maps Out Route To $10bn Cardiovascular Franchise" - Scrip, 6 Apr, 2022.)
While new Medicare reimbursement policies stemming from the Inflation Reduction Act (IRA) remain on the VC firm’s radar, Cuffaro said it is not yet impacting any investment decisions.
“It hasn’t yet shifted our investment focus, but we will continue to re-evaluate that,” she said. “It certainly is a topic of conversation.”
Despite all of the challenges in the current environment for biotechs, Cuffaro insisted that the opportunities for investment remain plentiful.
“There has really never been a better time to be a biopharma investor,” she said. “We are seeing exciting data come from entrepreneurs pitching to us with new opportunities but also internally with our portfolio.”
Canaan’s last early-stage venture capital investment fund raised $800m and launched in October 2020. Canaan’s total assets under management, including the newest funds, is $6.8bn.