DURHAM – Let’s talk froth. Not the kind that settles on top of a creamy latte, but the market kind.
With U.S. healthcare venture fundraising on pace to closely match its 2017 record of $9.1 billion, already hitting $4.5 billion mid-year, many analysts say the IPO market – with its sky-high valuations – is getting frothy.
No more so is this seen than in the arena of biopharma. Still, what that means is not exactly clear. And this is an important trend to track locally, given that the Triangle is one of the nation’s largest life science industry clusters. Statewide, the impact is important as well with more than 600 companies and over 60,000 employees, according to data from the Economic Development Partnership for North Carolina.
“We’re on track to do 160 Series A in Biopharma this year. We’ve already deployed $2.5 billion in capital into the market. These are staggering results,” said Ben Johnson, Silicon Valley Bank (SVB)’s national head of Early Life Science Practice.
Healthcare fundraising on torrid pace
In town to speak at LaunchBio’s monthly Larger Than Life networking event on Thursday night, he backed up his personal observations using data from SVB’s recently released mid-year Healthcare and Exits report.
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Among its most stunning findings: the surge of median Series A funding to $32.5 million in Q2 of this year. To put that in perspective, median Series A funding never exceeded $19.1 for any quarter the year prior.
“That’s insane. Unsustainability is how you might wrap your brain around it,” Johnson told the crowd gathered at The Chesterfield. “A lot of the ‘aha’ questions that we have are around what’s going on, and why there are so many huge Series A deals all of a sudden.”
Silicon Valley Bank’s national head of Early Life Science Practice Ben Johnson
The emergence of crossover investors, like Alexandria Venture Investments and OrbiMed, collaborating with top-tier venture capitalists, is part of the explanation.
Meanwhile, corporate venture capitalists, which have historically accounted for a higher percentage of investments in biopharma, seem to have taken a back seat – comprising only 16 percent of the deals in the first half.
But that number might not tell the whole story.
“We don’t know if this is a throwaway number, or if this is the beginning of a trend,” said Johnson.
“When we get to our next report, we will have more insight on that.”
“My key takeaway is, we’ve never seen as much activity in Series A in biopharma since we’ve been around,” he said. “The average IPO valuation right now is over $300 million [for the] average biopharma company. That’s causing Series A and Series B valuations to also be really frothy. It’s creating a lot of opportunities for companies to get funding.
Not a universal trend
Megann Vaughn Watters, LabCorp’s VP of Corporate Development, Ventures and Licensing, said companies like LabCorp that are involved with diagnostics aren’t seeing as high valuations as biopharma, after a period of high growth.
“We are finally getting reasonable,” she explained. “The valuations got crazy out of control and people didn’t have the data to back it up. There was no reasoning with certain companies. It’s normalized at least now.”
