Biopharma venture capital activity is poised for one of its strongest years if the dollar value of deals continues as high as seen in the first half of 2017.

Investors raised $1.876 billion in 93 biotech VC deals during the second quarter, according to the most recent quarterly MoneyTree™ Report from PricewaterhouseCoopers (PwC) and CB Insights, released Wednesday.

That’s 5.6% in dollars, and about 21% in number of deals, above the $1.776 billion in 77 biotech VC transactions recorded in Q2 2016. However, the second three months of 2017 lagged behind the first quarter, in which $2.821 billion in VC was raised in 112 deals.

Q1 numbers were skewed by a pair of megadeals totaling $1.1 billion—nearly all of which consisted of the $900 million raised by cancer diagnostics firm GRAIL.

“If we continue to see one or two large deals like we have over the first two quarters, we could be looking at one of our strongest life science years in history,” Greg Vlahos, PwC’s US life sciences venture capital leader, told GEN. “If you look at the total dollars for just the first two quarters, we’re on pace for an extremely strong 2017 that has been buoyed by some of these megadeals we saw in Q1 and Q2.”

During the second quarter, a pair of additional nine-figure deals were completed, accounting for about 26% of the quarter’s biotech VC financing.

Guardant Health said May 11 that it racked up $360 million in new funding, while Rubius Therapeutics said June 21 that it raised $120 million in a “highly” oversubscribed private financing.

LUNAR Mission: Detecting Cancer Early

Guardant Health said its funding would go toward expanding its early cancer detection efforts, announced last year under the name Project LUNAR. The company said its initial LUNAR products will seek evidence of residual disease in patients who have undergone surgery, radiation, or other treatments intended to cure them of cancer. Guardant also expects to introduce tests to identify early signs of cancer in high-risk patients who have not yet been diagnosed. 

A subsidiary of SoftBank Group led Guardant Health’s financing, with participation from funds and accounts managed by T. Rowe Price, Associates; Temasek Holdings, a Singapore state-owned investment firm; and others—including existing investors Sequoia Capital, Khosla Ventures, Lightspeed Venture Partners, OrbiMed, and 8VC. As a result of its May financing, Guardant Heath has raised more than $500 million.

Rubius said proceeds from its financing will be used toward accelerating the advancement of Rubius’ breakthrough Red-Cell Therapeutics™ (RCT™) product portfolio, further expanding its staff, and preparing to enter human clinical trials in 2018.

Rubius was conceived, launched, and funded by Flagship VentureLabs®, Flagship Pioneering’s innovation foundry. Flagship Pioneering significantly increased its investment in this financing, in which it was joined by undisclosed large institutional investors.

Of companies for which a specialty description was available, drug development companies won the most in VC funding during Q2, with $536.17 million, 29% of the biotech total.

That was followed by disease diagnosis ($98.22 million, 5.2%), pharmaceuticals/drugs ($94.4 million, 5%), drug delivery ($84.63 million, 4.5%), drug discovery ($58.37 million, 3.1%), and drug manufacturing ($7.69 million, 0.4%). However, companies described solely as “biotech” racked up more than half of the VC raised, $996.21 million or 53%.

Seven additional companies raised $45 million or more, accounting for $372.18 million or nearly 20% of the VC funding raised during Q2. WuXi NextCode raised $75 million, the most of the seven, followed by Intarcia Therapeutics ($54.68 million), Deciphera Pharmaceuticals ($52 million), Magenta Therapeutics and Syntimmune ($50 million each), Arsanis ($45.5 million), and TP Therapeutics ($45 million).

Liquidity Driving Larger Deals

“We’re seeing dollars go to companies who normally are at a later-stage deal and getting close to a liquidity event. As it takes a little longer for liquidity for some companies, we’re seeing larger rounds go to these companies,” Vlahos said.

Investor interest in public biotechs cooled from late 2015 into earlier this year, driven by fears that either Hillary Rodham Clinton would follow through on promises to curb drug prices, or that Donald Trump would do so. That Wall Street swoon explains why many later-stage venture-financed companies raised additional funding—though the market for initial public offerings has warmed up in recent months.

“These later-stage companies take a lot more money to run quarterly operations. And if they’re not accessing the public market, they’re taking larger rounds to give them the runway until they do reach the public market,” Vlahos said.

Nearly half of VC financing went to companies in expansion stages—$1.249 billion or 48% of the total $2.6 billion in “life sciences” financing, a category that include medical devices and equipment. Another 33%, $869.56 million, was raised by more mature “later-stage” companies. The next largest share of VC financing was by early-stage companies ($391.45 million or 15%), followed by “other” ($72.13 million or 2.8%) and seed-stage ($17.74 million or 0.7%)

The amount raised in early-stage financing fell from $646.37 million in Q2 2016, and $847.71 million in Q1 2017.

“Our early-stage investment in this quarter were about 15% of total investment. If you look at the average over the last 10 quarters, early stage is less than 25%,” Vlahos said. “That 10% difference funneled to either expansion or late-stage companies. I think it shows that as we’re seeing it taking longer for companies to reach liquidity, later-stage and expansion-stage companies are getting additional rounds of financing, which is shifting the average a little bit.”

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