The first quarter of every year tends to have fewer funding announcements by life sciences investors than other quarters and it’s still too early to draw a conclusion for 2022. Nevertheless, the drop is noteworthy after huge fundraising by venture capital (VC) firms in 2021. According to Christian Elling, Managing Partner at the Lundbeck Foundation, the pattern is a reaction to the poor public markets.
“Everybody’s coming up to the surface and orienting themselves to the current market,” he explained. “And I think we are all wise to do so right now.”
After the megafunds raised last year, European VC firms have amassed big financial muscle to buoy private biotech companies. This could keep the industry fuelled as Europe faces growing challenges such as fallout from the Covid-19 pandemic, the war in Ukraine, and the threats of inflation and economic recession.
“We’ve seen funds taking a lot of money recently and probably they will want to deploy some or all of that,” said Elling. “So that’ll stabilize the private side to some extent, but only for a limited period of time.”
Nonetheless, there are signs that Europe’s private biotech scene will stay strong in the long term. Growing VC fund sizes and the recent takeover of the firm Abingworth by the investment giant Carlyle showcases an increasing investor focus on the life sciences, a trend that was hastened by the Covid-19 pandemic.
“The perception of biotech as a very risky sector has changed,” said Rachel Mears, Partner at Jeito Capital. “Both public authorities and private stakeholders recognize the need for resilient, innovation-rich healthcare systems.”
“The Abingworth acquisition can surely pave the way for other transactions of its type as we see some stakeholders, such as EQT and Carlyle, using the acquisition approach to enter this part of the biopharma landscape without having to assemble investment teams and portfolios from scratch.”
Additionally, investors are increasingly doubling down on nurturing Europe’s life sciences research, which continues to lead the world in many fields. In the case of the Lundbeck Foundation, majority shareholder in the big pharma Lundbeck, the firm recently adjusted its strategy to increase its attention on startups in the local Danish biotech ecosystem.
“Much as we appreciate the global investing from a biotech perspective, building the industry locally gives us even more value creation over and above financial value,” explained Elling.
Another reason for the increased European biotech focus is that the costs of investing in US biotech companies are becoming too high compared to their perceived value. European companies can be an attractive alternative.
“Even some US investors have seen that they can get a much cheaper deal by simply going to Europe, so some have started to do that more than before,” noted Elling.
While hard times are on their way, Mears sees private biotech companies receiving bigger VC funding rounds than in 2018, which could ensure advanced companies can continue funding the clinical development of their treatments.
“The larger round raises are an important and welcome shift in landscape, as growth-stage European biopharma companies need significant capital and benefit from broadened, high-quality investor syndicates,” she noted.
Overall, VC players are poised to support their portfolio companies as they collectively brace for the difficult times ahead. Some investment firms may even be looking for opportunities created by the tumult.
“I think as far as you have the nerve and the longevity, you can play an important role in the next phase,” concluded Elling.
Disclosure: Carlyle is the largest shareholder in Inova, Labiotech’s parent company.
Cover image via Anatasiia Slynko
