VC Fundraising Fell In Q4 But There Are Glimmers Of Hope For 2024

Quality Of Top Five Financings Bodes Well

Evaluate’s fourth quarter data show that biopharma venture capital fundraising fell from $4.28bn in in Q3, but there was a rise in smaller deals and financial market conditions are poised for a turnaround.

The slowdown in financings across the biopharmaceutical spectrum hit private and public companies alike in 2023 and the latest venture capital fundraising data from Evaluate indicate that last year did not end on a high note. However, the numbers mostly show the industry holding steady as it braces for a potential upswing in 2024 based on signs that financial market conditions may be easing.

Evaluate tallied $3.71bn in venture capital raised globally by 86 drug developers during the fourth quarter, down from $4.28bn raised by 86 companies in the third quarter. Accordingly, the annual total fell 17.2% from $22.21bn in 2022 to $18.38bn in 2023, but the slowdown eased relative to the 28.9% drop between 2021 and 2022. With recent public biopharma company valuation gains and the potential for interest rates to stabilise or decline in 2024, private firms will watch closely for a lift in VC funding.

Key Takeaways

Venture capital fundraising by biopharma companies declined from $4.28bn in Q3 to $3.71bn in Q4, according to Evaluate.
Public company valuations have risen recently, interest rates may stabilise or fall in 2024 and M&A activity is on the rise, offering glimmers of hope that VC investment could rise this year.
Other glimmers from the Evaluate data: the amount of smaller financings increased quarter-over-quarter and the top fundraisers had big initial rounds or large increases from prior rounds.

One of the factors impacting venture capital is the ability for drug developers to launch an initial public offering, and such offerings were relatively limited in 2022 and 2023 relative to the record-breaking level seen in 2021. Without that exit option, many VC investors have held off on new investments, choosing to reserve cash for current portfolio companies still waiting for the IPO window to open.

New IPOs have been limited since 2022 because of falling valuations for already public biopharma companies. The Nasdaq Biotechnology Index (NBI) and the closely watched XBI fund are down by more than 6% and 20%, respectively, over the past two years. However, based on a year-end rally due in part to some substantial merger and acquisition activity – the other exit strategy for VC investors – the NBI ended 2023 up 4.1% and the XBI closed out the year with a 7.6% gain.

Bristol Myers Squibb Company agreed to buy Karuna Therapeutics, Inc. for $14bn in late December. Then the big pharma announced its $4.1bn purchase of RayzeBio, Inc. a few days later. This followed similar back-to-back M&A activity by AbbVie Inc. in late November and early December, when it agreed to pay $10.1bn for ImmunoGen, Inc. and $8.7bn for Cerevel Therapeutics Holdings, Inc.

Interest rates are a major factor impacting investment across the board, but the US Federal Reserve has offered some encouragement. After meeting in mid-December, the Federal Open Market Committee forecast that the federal funds rate will drop from a median of 5.4% in 2023 to a median of 4.6% in 2022 with further easing through 2026, as long as inflation continues to rise at a rate of about 2%.

If the pace of M&A continues to be brisk, and if the IPO window opens a little wider

based on improving interest rates and company valuations, venture capital investment in biopharma could rise in 2024.

One hopeful sign in recent VC investment activity came at the smaller side of the spectrum, with a rise in venture rounds totalling less than $50m. Fundraising in this segment totalled $1bn in Q4, up from $840m in Q3, according to Evaluate, which may indicate an increase in seed and series A rounds for new start-ups – a group struggling as investors retain cash to support prior investments.

Venture funding rounds totalling $50m-$100m held steady at $1.01bn in Q4 versus $1.05bn in Q3, but VC mega-rounds of $100m or more fell sharply to $1.7bn from $2.39bn.

Q4’s Top Five Fundraisers

However, the largest of Q4’s mega-round deals showed strength not seen among all of the Q3 top five VC fundraisers, some of which stumbled to their latest financings. Each of the fourth quarter’s top five companies raised substantial first-ever rounds or brought in more cash with their latest rounds than in their prior rounds.

Aiolos Bio Inc. launched with a $245m series A round in October, early on in the fourth quarter. The company was able to emerge from stealth with such a large VC round – the biggest one in Q4 – because its lead drug candidate is Phase II-ready and has a proven mechanism of action. AIO-001 is a thymic stromal lymphopoietin (TSLP) inhibitor moving into Phase II for the treatment of moderate-to-severe asthma.

MapLight Therapeutics closed its second place VC financing at the end of October. Its $225m series C round was a marked step up from prior financings, according to US Securities and Exchange Commission (SEC) disclosures – $5m in March 2019, $16m in September 2019, $30m in March 2021 and $12m in November 2022.

MapLight is developing novel targeted therapeutics for neuropsychiatric and neurological conditions, including lead drug candidate ML-007C-MA, an M1/M4 muscarinic agonist combined with a precision matched peripheral muscarinic antagonist that is moving into Phase II for schizophrenia and Alzheimer’s disease psychosis. Its pipeline also includes clinical-stage drug candidates for dyskinesia and autism spectrum disorder. It has preclinical candidates for Parkinson’s disease and depression as well as hyperactivity and impulsivity.

Tome Biosciences Inc. launched with $213m in series A and B funding in December to develop gene therapies for monogenic liver diseases and cell therapies for autoimmune diseases. Tome, which is using programmable genomic integration (PGI) to develop its therapeutics, followed the financing with an announcement on 2 January that it will acquire another PGI-based drug developer, Replace Therapeutics, for $65m in the near term and up to $185m in long-term deal value.

Terremoto Biosciences, Inc., like MapLight, also made a big leap from one round to another, announcing its $175m series B round in early November after it raised a $75m series A one year earlier. The company is developing small molecules against undruggable targets based on an expanded covalent alphabet for the treatment of severe diseases with high unmet need.

Bicara Therapeutics announced a $165m series C round in December, which followed a $108m series B round in March, bringing its total for the year to $273m. Its series C was the fifth-largest VC round in Q4, but its combined series B and C haul also puts the company in fifth place among 2023’s top five venture capital fundraisers. Bicara plans to take its lead drug candidate and sole clinical-stage asset – BCA101, an EGFR/TGF-β inhibitor – into a pivotal trial for head and neck cancer.