Two big closings last month by Ysios Capital in Spain and Abingworth in the UK continue a busy fundraising year for European biotech investment firms.
The second quarter of 2021 so far has seen an impressive cash yield for investors supporting the push for new treatments. Last week, the Spanish venture capital (VC) firm Ysios Capital made headlines with the closing of its largest fund yet, the €216M BioFund III. Two weeks prior, the London-based Abingworth capped off its own Clinical Co-Development Fund 2 at €476M ($582M).
Drug development isn’t the only field that has seen great interest from investors in the last few months. Biotechs revolutionizing agriculture stand to benefit from recent funds closed by Yield Lab in Ireland and Peakbridge in Malta. And big money pots raised by Endeavour Vision in Switzerland and the newly launched Swedish firm Segulah Medical Acceleration place emphasis on the thriving fields of medtech, diagnostics, and genomics.
“Governments, citizens, and investors are now more aware than ever of our healthcare systems’ strategic importance and current limitations,” stated Bernard Vogel, co-founder and Managing Partner of Endeavour Vision. “This is accelerating the demand for pioneering solutions that can deliver sustainable healthcare.”
In the first half of 2020, there were fewer fundraising announcements by investors, in part a result of uncertainty caused by the pandemic. Much of this impact was due to the firms waiting for the pandemic to cease dominating the headlines, rather than difficulties in fundraising.
“While the Covid-19 pandemic has presented many challenges, including difficulty in meeting with people face-to-face, we have been extremely pleased by the deal flow we’ve seen in Europe and remain on track,” said Rafaèle Tordjman, CEO of Jeito Capital, which was founded in January 2020.
Since late 2020, however, there has been a rebound in fundraising by life sciences investors.
This trend became particularly intense starting in March 2021. The US firm Orbimed — one of the world’s biggest life sciences investors — bagged a neat €2.9B ($3.5B), which it allocated to three funds. Within days of Orbimed’s announcement, the French heavyweight Sofinnova revealed what it dubbed Europe’s largest crossover fund dedicated to biopharma and medtech companies that aim to scale up operations.
“We’re seeing the entire sector shift and are able to access funds we never would have dreamed of accessing before,” said Antoine Papiernik, Sofinnova’s Managing Partner and Chairman.
“Healthcare and biotech – while once considered slightly risky investments in Europe – are now very much a priority for even the most conservative investors. Everyone wants to make sure they are in it and that has led to a strong increase in VC funding.”
One reason for this change in attitudes towards biotech is that European biopharma and medtech companies are maturing fast. Another is that many European firms, such as the German giant BioNTech, have gained huge publicity in the fight against the Covid-19 pandemic.
“Europe is now on par with the US in terms of technology,” said Papiernik. “When you think about the biotech companies that have played the most critical roles in confronting and beating this global healthcare crisis, you think both of BioNTech and Moderna.”
As the European biotech industry matures, there are gaps in the ability of the local investment ecosystem to support biotech companies. Sofinnova’s recent fund aims to overcome one of the biggest challenges: a shortage of European cash to help late-stage biotech companies expand. This is a role that has often been filled by investors outside of Europe.
“The gap has led European biotech companies to increasingly look to the US for their capital growth: almost 30% of private venture investments now originate from the US, and since 2012, almost one in three European biotechs filing for an IPO have done so directly on the Nasdaq,” Papiernik explained.
Though it can supply vast amounts of cash, this reliance on the US has its downsides. For example, many European biotech companies have recently suffered from stock price falls and delayed IPOs on the Nasdaq. This was in part due to investor uncertainty in US biotech and pharma circles caused by regulatory debates surrounding drug pricing, drug approvals, and corporate acquisitions.
Another gap in European life sciences investments — translating academic research into successful startups — is to be addressed by the startup creator eureKARE. This French firm launched recently with a different funding model than that of a classical VC fund. Instead, it chose a company structure, which allows it to raise funds from diverse sources such as debt financing.
The European biotech ecosystem also has a big strength that is attracting investments to the continent: European companies often provide investors more bang for their buck than their US counterparts.
“Europe is seen as very attractive currently because good quality assets can be sourced 40% cheaper compared to equivalent US assets and the cost of running a biotech business in Europe is 50% lower compared to the US,” said Sander Slootweg, Managing Partner at Forbion, which raised a €460M fund in record time last December.
In particular, biotech investors based in the UK and the Netherlands seem to have been some of the biggest beneficiaries. From the start of 2020 until now, biotech investment firms raised a total of almost €1.5B in each country.
Not only have there been more VC deals, but bigger funds are becoming more common. For example, Amsterdam-based Life Sciences Partners (LSP) put together a whopping €528M fund in March last year. Slootweg sees these funds getting even bigger going forward.
“There is a trend of consolidation of the VC industry where the bigger funds get bigger and increase their offering to their investors and the smaller funds struggle to raise subsequent funds,” he explained. “This has to do with a critical mass of people and skills on the teams, market reach, and increased regulatory hurdles for VC funds.”
As we move further into 2021, it’s unclear whether funding announcements from VCs and other investors will continue to increase over the next few months.
Hubert Birner, Managing Partner at TVM Capital Life Sciences, hopes to see the scene continue to thrive. “I would wish to see some new teams and new approaches, and that people will be able to raise money to refresh the face of the industry and have more competition,” he said.
“Maybe Germany will have one or two new fund managers and maybe we’ll see something out of Switzerland.”
This is an updated version of an article published on the 25th November 2020.
Cover image from Anastasiia Slynko.