Late 2020 saw an uptick in fundraising announcements from life sciences venture capital firms. Two huge closings this month by Sofinnova Partners in France and OrbiMed in the US indicate this trend is continuing.
News of Sofinnova and Orbimed’s funds came at the start of March within days of each other. OrbiMed, one of the world’s biggest life sciences investors, bagged a neat €2.9B ($3.5B), which it will allocate to three funds. In Paris, meanwhile, Sofinnova raised €445M for what it dubbed Europe’s largest fund dedicated to biopharma and medtech companies that aim to scale up operations.
The European biotech industry is attracting more investments than ever before. One reason for this trend 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 Antoine Papiernik, Sofinnova’s Managing Partner and Chairman. “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 industry matures, there is a general 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. Sofinnova’s latest fund aims to change this.
“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.
Sofinnova’s recent crossover fund is just the tip of the iceberg when it comes to biotech VC fundraising activities in Europe. Early- to mid-2020 saw relatively few fundraising announcements from VC firms, likely due to uncertainty caused by the pandemic. But from August onwards, these activities have rebounded.
“We’re seeing the entire sector shift and are able to access funds we never would have dreamed of accessing before,” Papiernik told me.
“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.”
Covid-19 isn’t the only reason why investors have been flocking to European life sciences VC firms. Another factor is that European companies often provide investors more bang for their buck than US companies.
“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.
Not only have there been more VC deals in recent months, but bigger funds are becoming more common. One notable exception to this trend was Amsterdam-based Life Sciences Partners (LSP), which 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.”
Although the pandemic did seem to impact fundraising announcements from biotech VC firms in early 2020, operations have been able to continue for the most part.
“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. “It’s an exciting time to be an investor in biotech, as we are seeing more innovation and exciting science than ever before.”
Investments in biomedical companies have increased greatly, but the impact of Covid-19 on investments in industrial biotech has been more complex. For example, the European Circular Bioeconomy Fund closed the first €82M of its €250M target only in October; this had been delayed by half a year due to the pandemic. Nevertheless, demand is growing.
“Perhaps another consequence of this pandemic is that we have become increasingly sensitive to global issues impacting our health and well-being,” said Papiernik. “This includes sustainability issues, which are at the forefront of the public consciousness these days.”
As we move further into 2021, it’s unclear whether VC funding announcements 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