The dollar value and number of biopharma venture capital deals continue at a potentially record clip heading into the final quarter of 2017.

Investors raised $2.221 billion in 102 biotech VC deals during the third quarter, according to the most recent quarterly PwC/CB Insights MoneyTree™ Report, released Wednesday.

That’s 12% less in dollars, and almost flat in number of deals, compared with the $2.516 billion in 104 deals recorded in Q3 2016. But the third quarter finished 36% higher in dollars, and 12% more in deals, ahead of the second quarter, which according to updated MoneyTree figures showed $1.852 billion raised in 93 deals.

More encouraging, biotech VC investment through the first three quarters of 2017 stood at $6.930 billion, up nearly 4% from $6.676 billion during Q1 to Q3 2016—while the number of deals rose 5% year-over-year, to 310 in January–September 2017 from 294 a year earlier.

“I think that we’re going to continue to see strong investing in Q4,” Greg Vlahos, PwC’s US life sciences venture capital leader, told GEN. “I wouldn’t be surprised if we saw the year end up with a record year for biotech, just based on where we currently stand after three quarters.”

One key indicator of robust biotech venture capital financing in recent months, he said, was the continued closing of “megadeals” of $100 million or more. Biotech saw three megadeals during Q3, accounting for 23% of the quarter’s biotech VC financing. 23andMe said September 12 it raised $250 million in “growth” capital. Two weeks later on September 26, Indigo Ag (formerly Symbiota) collected $156 million in a first closing of a Series D financing.

And a day earlier, SpringWorks Therapeutics spun out of Pfizer, which joined with three other investors to fund the new company’s $103 million Series A financing.

‘A Big Event’

“You traditionally see the megadeals in the expansion and later stage. So early-stage companies getting $100 million is definitely a big event,” Vlahos said.

He said SpringWorks’ financing reflects growing investor interest in the early stages of biotechs and other “healthcare” companies, a category defined by MoneyTree to include “all aspects of medical care and wellness: diagnosis, drug development and distribution, medical products and facilities, healthcare plans, and alternative treatments and elective procedures.” That isn’t evident from the cumulative totals for Series A “early stage” investment, which at $1.837 billion for Q1 to Q3 2017 is 26% below $2.485 billion for the same three quarters a year earlier—though the number of early-stage deals year-over-year only fell 6%, from 148 to 139.

However, pre-Series A or “seed” stage financing jumped 33% during the period, to $118.21 million from $88.9 million. And during Q3 alone, seed financing nearly tripled year-over-year, to $57.33 million from $21 million in the third quarter of 2016—while early-stage investment actually rose over Q2’s $473.18 million, to $488.36 million. The number of seed stage deals jumped to 30 in Q3 from 17 in Q3 2016 and 20 in the second quarter of this year.

“We saw a significant shift in both the number of deals and dollars invested in early-stage biotech companies,” Vlahos said. “I think this shows a couple of things. It’s indicating the investors are committed to the industry, investing in early-stage companies. But it also shows there’s higher competition for deals, and it’s forcing investors to get in at earlier stages than what you traditionally see.”

Yet early-stage companies during Q3 commanded just 15.3% of the total $3.185 billion in healthcare financing, and seed stage, just 1.8%. Nearly half of VC financing continued to go to companies in “expansion” (Series B and C) stages—$1.308 billion or 41% of total healthcare investment. Another 36%, $1.136 billion, was raised by more mature “later-stage” companies (Series D and beyond), while the remaining $195.16 million or 6.1% was listed as “other.”

Among later-stage companies, 23andMe’s $250 million financing more than doubled, to $491 million, its total capital raised by the direct-to-consumer (DTC) genetic testing pioneer since it was founded in 2006. Proceeds will be used toward efforts to fuel customer growth and further invest in its research platform, 23andMe said in announcing the financing on September 12.

New investor Sequoia Capital led the 23andMe financing, joined by three additional new investors: Euclidean Capital, Altimeter Capital, and the Wallenberg Foundation. Also participating were existing investors that included Fidelity Management & Research Company and Casdin Capital.

Focus on Expansion

Indigo aims to promote plant health and improve agricultural production by harnessing beneficial microbes that reside within plants. The company said its $156 million financing round will support continued investment in plant microbiome research, development of software and data tools, and rapid commercial expansion.

Baillie Gifford and Activant Capital were among Indigo’s new investors in its financing round, joined by founder and first investor Flagship Pioneering and another existing investor, the Alaska Permanent Fund.

SpringWorks, a developer of drugs for underserved patient communities, said its financing would help it advance potential programs for four diseases that currently have no cure:

  • Desmoid tumor, for which SpringWorks plans to launch a Phase III program for its gamma-secretase inhibitor nirogacestat (PF-03084014), in cooperation with the Desmoid Tumor Research Foundation.
  • Neurofibromatosis (NF), for which the company plans to begin a Phase III program for its MEK 1/2 inhibitor (PD-0325901) in NF type 1 patients, in cooperation with the Children’s Tumor Foundation.
  • Hereditary xerocytosis, which SpringWorks plans to treat via senicapoc (PF-05416266), which has shown favorable safety/tolerability in previous Phase I to III studies in other indications.
  • Posttraumatic stress disorder (PTSD), for which the company envisions developing a fatty acid amide hydrolase (FAAH) inhibitor (PF-0445784). The candidate has shown good safety/tolerability profile in previous Phase I studies, but its effectiveness in PTSD is unknown.

Bain Capital Life Sciences, Bain Capital Double Impact, and OrbiMed funded SpringWorks’ $103 million financing along with Pfizer—whose contribution also includes equity capital as well as royalty- and milestone-bearing licenses to experimental therapies.

Of companies for which a specialty description was available, drug development companies won the most in VC funding during Q3, with $426.17 million, 19.2% of the biotech total.

That was followed by disease diagnosis ($417.31 million, 18.8%), drug discovery ($123.13 million, 5.5%), drug delivery ($77.46 million, 3.5%), elective and aesthetic medicine ($43.88 million, 2%), pharmaceuticals/drugs ($27 million, 1.2%), drug manufacturing ($12.32 million, 0.6%), and pharmaceutical distribution and wholesale ($8.86 million, 0.4%)

Companies described solely as “biotech” racked up just under half of the VC raised, $1.085 billion or 49%.

Seven additional companies raised $62 million or more, accounting for $440.2 million or about 20% of the VC funding raised during Q3. Gritstone Oncology raised $92.7 million, the most of the seven, followed by Homology Medicines ($83.5 million), Tempus Labs ($70 million), Amplyx Pharmaceuticals ($67 million), Kaleido Biosciences ($65 million), and Complexa ($62 million).

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