Investments in U.S.-based biotech firms shrink 46% YoY

A notable increase in venture financing in the U.S. biotech private sector was seen in 2021, with company stocks only increasing. Thus it is conceivable to make the case that a bubble was growing in the biotech space, which has since burst with the entrance into the bear market in 2022.

Moreover, a 46% drop in venture financing deal value for the U.S.-based biotech companies was noted, from $7.8 billion in Q1 2021 to $4.2 billion in Q1 2022, according to GlobalData’s Pharma Intelligence Centre database.    

In addition, Mariam Shwea, MPH, Business Fundamentals Analyst at GlobalData, commented on the state of the biotech sector, noting that prices were inflated in 2021 and that now, VCs need to be more selective. 

“While a large number of early-stage biotechs went public with inflated stock prices in 2021, Q1 2022 entered a bear market with stock prices plummeting and many biotechs trading below value as a result. Venture capital firms are now more selective in their biotech investments for 2022 compared to 2021.”

Oncology takes center stage 

Oncology remained the leading interest area where funds were channeled, raking in $1.5 billion in Q1, which is still a far cry from the $4.5 billion seen in Q1 2021. Meanwhile, immunology is catching up to oncology, with $1.25 billion in funding for Q1 2022 versus the $1.5 billion seen in Q1 2021.  

According to Shwea, a shift towards selective investments into early-stage companies has been seen in this bear market. 

“Investors have become more selective in investing towards early-stage biotechs in the current bear market. Therefore, biotech companies should aim to widen their selection of venture capitals when raising funding. Instead of having one or two, companies should have three or four investors each who have deep pockets and knowledge of the sector to pitch their business to.”

She also added:

“It remains to be seen if this trend will continue for the foreseeable future, with both investors and pharma companies thinking more cautiously about allocating capital.”

Finally, the Covid pandemic likely led to the rise in funding for the biotech industry last year, with various early-stage biotechs being priced exorbitantly.

With the stock prices falling for the better part of 2022, a more selective approach by both VCs and investors will separate the wheat from the chaff. 

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