Privately held drug developers raised about $6.7 billion in the second quarter, marking the best three-month stretch since the beginning of 2022 and the tail end of the high-flying days of the pandemic.
That figure — from investment bank William Blair’s latest quarterly analysis — paints a rosy picture for industry fundraising, which has undergone a difficult stretch for several years.
But there’s a caveat: Investors are selective. Biotech VC firms are “flocking towards hot stories,” Oppenheimer bankers wrote Monday in a quarterly update. “Despite strong private markets activity, deals still took longer to close due to significantly elevated investor selectivity and due diligence rigor.”
Total fundraising hit a two-year peak, with investors dishing out an average of $94 million per financing round. That’s a $20 million increase over the first quarter and the highest since the $112 million doled out per round in the first quarter of 2022, per William Blair.
However, the volume of rounds was lower than the first quarter and three other quarters since the beginning of 2022.
Megarounds, of which there were at least 29 in the second quarter, are a key driver behind the higher dollar amounts. While the “megaround frenzy [is] expected to cool” in the second half, according to the Oppenheimer bankers, the momentum behind private financing is expected to keep pace. Multiple VC firms disclosed new funds in the second quarter, creating more than half a dozen new capital pools to deploy.
Also on the rise were crossover rounds, which typically mark a biotech’s last private raise before an IPO. William Blair counted 14 crossover rounds from April to June, the best period since the third quarter of 2021, when there were 21.
Kevin EiseleThat’s an “encouraging sign that the market broadly is reopening,” said Kevin Eisele, a managing director on William Blair’s healthcare equity capital markets team. “As the IPO market continues to improve, you’ll see more and more of the crossovers as well, because it gives them line of sight into viable liquidity in the near-term.”
And for those who say one quarter is no quarter — meaning, don’t read too much into data from a short period of time — then look to this data point: For the first time since 2021, the industry had at least 10 biotech crossover financings in two consecutive quarters, William Blair noted.
Similarly, in its report, Oppenheimer noted Series C and later-stage rounds are on track to surpass 2022 and 2023 levels, perhaps indicating that more biotechs are approaching the Nasdaq or NYSE.
“As more crossovers happen, it also helps build the pool of companies that are ‘IPOable,’” Eisele said.
Multiple biotechs are in the IPO queue, including Artiva, Aprinoia and Actuate. Others are reportedly on the cusp, too, like LB Pharmaceuticals, MapLight and Upstream Bio.
“On the IPO side, we have a couple of processes that we’re involved with that are looking at a post-Labor Day window potentially – call it late summer, early fall — in advance of the US presidential election, and we’re aware of quite a few others that are working toward similar timelines,” Eisele said.