Venture Capital Still Flowing to Life Sciences, Stoking Innovation

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Joyce E. Cutler

Companies chasing products in precision medicine and digital health are getting more venture capital love as investors see the upside of innovations in genomics and other cutting-edge technologies.

Life sciences deals with valuations exceeding $100 million doubled to 28 percent in the third quarter from 14 percent in the first quarter of 2016. That compares to technology deals with similar valuations dropping to 23 percent from 29 percent during the same period, the Cooley Venture Financing Report for the third quarter said.

Amid declining U.S. venture capital deal activity, health-care companies attracted $11 billion in venture funding and increased their share of total capital invested to 19 percent in 2016 from 16 percent in 2015, said Kash Kapadia, chief executive officer of consultant Digital Directive, citing PricewaterhouseCoopers Moneytree and CB Insights data.

“These underlying complementary trends bode well for innovation in precision medicine and digital health as much of the investment is being directed towards areas such as genomics, medical diagnostics, clinical insights, hospital management and drug discovery,” Kapadia told Bloomberg BNA Jan. 25.

Life Sciences Deals Blossoming

California in 2016 was the top state for life sciences VC investment with $4.4 billion in funds—$3.3 billion in biotech and $1.1 billion in medical devices, the California Life Sciences Industry Report said. Massachusetts was second with $2.9 billion. The life sciences are second only to software in California for VC funding, California Life Sciences Association spokesman Will Zasadny said Jan. 25.

The venture funding arc shifted with dollars that flowed to tech moving toward life sciences, Third Rock Ventures partner Alexis Borisy said Jan. 23 during a session of the Precision Medicine World Conference in Mountain View, Calif. “I think we’re in a strong, longtime golden age of innovation.”

Going Molecular, Genetic

Immunotherapy for oncology and auto-immune disorders continues to attract investment as do genetic therapy deals involving otherwise intractable diseases such as Alzheimer’s or ALS, said Jeffrey Libson, a life sciences partner at Cooley LLP. Therapies aimed at microbiomes in the gut and skin also are hot for biotech investment.

Foundation Medicine Inc., a molecular information company focusing on cancer care, is a company Borisy said he loves. In the “fundamentally challenging” world of reimbursement, Foundation captured the imagination and overcame many headwinds, he said.

GenePeeks Inc., which develops software that provides preconception genetic risk screening insights, is a company Andrew Schwab, managing partner at 5AM Ventures, said he’s excited about.

“I think that we’re at 1.0 in the prenatal diagnosis field and I think we’re going to 2.0, 3.0, and the idea of combining information and biology is what makes that possible,” Schwab said during a panel with Borisy.

Using the patient’s own body as a source of repair is getting the Thiel Foundation’s Breakout Labs’ attention, said Lindy Fishburne, Breakout Labs executive director.

Breakout invested in EpiBone, which uses patients’ stem cells to grow anatomically precise replacement bones rather than relying on transplants, is one “standout” company, Fishburne said.

Also getting interest is liquid biopsy, a cancer-detecting blood test “which is really a corollary for sequencing applications,” Jonathan Palmer, a Bloomberg Intelligence health-care analyst, said Jan. 25.

Going Long

VC investors didn’t seem too concerned about potential negative impacts of the Trump administration, taking a long-term view.

“From venture perspective, most of what we invest in is going to come to fruition three, five, seven years from now,” Schwab said. 5AM Ventures backed Alexza Pharmaceuticals and Pearl Therapeutics Inc., a biopharmaceutical company AstraZeneca bought in 2013.

“We really don’t get caught up in what law may change in the next year or two that changes something” when the technology and products are years off, he said.

Whatever emerges from Washington, Borisy said, “it’s a long-term arc that we’re all taking to this.”

Looking at return on investment, the Trump administration hasn’t voiced “any change in the tone or direction of IP law in the short term or even in the long term,” David Suter, a Harness, Dickey & Pierce PLC intellectual property attorney who advises life sciences companies, said Jan. 25.

Health-care life sciences IP holders have issues, “but those issues I think have more to do frankly with the more recent court decisions. I’m not sure that the executive branch is going to make a difference on that in the short term or even the long term,” Suter told Bloomberg BNA.

The clinical development pathway is so long, “short-term issues aren’t daunting for long-term investors,” although there is concern about economic issues such as reimbursement and U.S. tax structure, Libson said.

“To get through a full clinical pathway can sometimes take eight to nine years so you can’t be investing on the basis of short-term issues when you’re dealing with a development pathway that can be 10 years long,” Libson said.

To contact the reporter on this story: Joyce E. Cutler in San Francisco at JCutler@bna.com

To contact the editor responsible for this story: Randy Kubetin at RKubetin@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law