Emerging biotech

Private funding for biotechnology startups rose during the first three months of the year, suggesting some of the sector’s momentum has translated to stepped-up investment in young drugmakers.

Twenty-six companies closed private fundraising rounds worth more than $100 million in the first quarter, according to data from HSBC Innovation Banking shared with BioPharma Dive in April. While venture rounds have grown in size in recent years, $100 million is typically viewed as a significant threshold.

Eight of those 26 biotechs were cancer drugmakers, while five were startups developing programs for neurological conditions, said Jon Norris, a managing director with HSBC. Overall, biotechs across the U.S. and Europe raised $6.8 billion in venture capital funding during the first three months of the year, nearly $1 billion more than the most active quarter in 2023.

“This is a good number for representing strong biopharma activity,” Norris said. “If you see another big increase, I’d be a little worried that we’d be trying to return ourselves to the 2021 cycle,” he added, referring to a boom year in biotech funding.

Venture firms are continuing to seek out surer bets, though. While some seed and Series A rounds are being built around more cutting-edge technology, many more are for tried-and-true management teams working to improve existing platforms, like antibody-drug conjugates or radiopharmaceuticals.

Among the most active investors currently are OrbiMed, Arch Venture Partners, GV, RA Capital Management and Cormorant Asset Management, according to William Blair. Several life sciences investment firms have closed new funds in the first quarter of 2024, including TCGX, Scion Life Sciences and Goldman Sachs — a sign of industry interest.

"Round sizes continue to increase given heightened focus from investors on providing sufficient 'inflection capital,'" William Blair analysts wrote in a recent report.

Eighteen of the 26 private financing rounds identified by HSBC involved companies in preclinical or Phase 1 drug trials. That contrasts with the firms having the most success pricing initial public offerings, which have mostly been biotechs in mid-to-late testing so far this year.

There remain a number of “very hungry buyers” for the right IPO story and promising clinical data, Norris said.

The apparent uptick in private funding also stands out in comparison to this time last year, when IPOs dropped off and venture funding became harder to secure. Then, life sciences companies were forced to turn more often to so-called “insider rounds,” or cash infusions from their existing backers.

Now, new investors are returning and often joining through large syndicates. Mirador, a startup birthed by former Prometheus executives, recently pulled in $400 million from 17 venture investors, for example.

“When markets aren’t as strong, you want like-minded insiders who are going to have a pragmatic approach,” said Brian Matesic, a principal at Norwest Venture Partners. In March, Norwest co-led a $157 million Series B round for psychiatric drug developer Engrail Therapeutics.

“M&A really started this rebound,” Matesic said. Blockbuster deals brokered at the end of last year included AbbVie’s $8.7 billion acquisition of Cerevel Therapeutics and $10.1 billion buy of ImmunoGen, Roche’s $7.1 billion purchase of Telavant and Bristol Myers Squibb’s $14 billion deal for Karuna Therapeutics.

After more than two years in the doldrums, initial public offerings, an important indicator of the biotechnology industry’s health, showed signs of life to start 2024.

A run of offerings in the first six weeks of the year, most worth around $100 million or more, put the sector on its strongest pace since 2021. Those IPOs, combined with a dealmaking surge, have given industry watchers reasons to be optimistic. 

“Some of the trends that are going on are in the right direction,” said Mike Perrone, a managing director at Baird, an investment bank, in March. If they continue, “we can feel confident that the worst is behind us.” 

Yet it’s unclear whether that’s the case for IPOs. Since a torrid two-week stretch in late January and early February, only two biotechs have priced an IPO. Offerings appear most accessible to companies with drugs in advanced testing; those earlier on still seem to be having difficulty. Some predict offerings won’t pick up until later this year or even 2025. 

“There’s still a lot of selectivity,” said Peter Maag, the CEO of Kyverna Therapeutics, which raised one of the year’s largest offerings. The market is “skewed towards late-stage, de-risked types of assets.” 

Whether it stays that way could have important consequences for how drug startups are built and financed in the near future. Here are three questions to watch:

Is the recent IPO surge a mirage? 

Through late May, 10 biotechnology companies have priced an IPO this year. They’ve raised roughly $1.4 billion combined, more than the total at this point in each of the last two years. In 2023, six companies raised a total of $925 million, while the year before 13 biotechs pulled in $1.3 billion, according to BioPharma Dive data. (That latter figure doesn’t include an IPO from Basuch + Lomb.)

CG Oncology, Kyverna Therapeutics and ArriVent Biopharma each raised more than initially projected. Their stock prices climbed after pricing, too, a sign of public investor demand. All three currently trade well above their IPO price.

Yet, over the past two years, dry periods have typically followed spurts of IPO activity. That appears to be happening again this year. 

Industry insiders interviewed by BioPharma Dive had mixed views on whether that pattern will change. 

Kazi Helal, Pitchbook’s senior healthcare analyst, said the surge in successful offerings could convince other biotechs to capitalize on the momentum. “More people will go IPO now because there's now money, and they don't want to be the last guy when there's no money,” he said.

But others are cautious. Michael Cohen, co-leader of Brown Rudnick’s venture capital group, expects more activity in late 2024 and early next year. To his colleague Chris Jeffers, Brown Rudnick’s vice president of life sciences, the pace of offerings by April will be a better barometer of whether the IPO window is actually open. 

Economic uncertainty or swings in the broader market may also impact the pace of activity, noted Kale Frank, managing director in Silicon Valley Bank’s life science and healthcare practice. Poor performance by newly public companies could push others to adjust.

"You will see some bursts of activity," but also "some cold spells,” Frank said. 

A glut of biotechs are waiting. The current backlog of companies looking to go public is bigger "than we've ever had,” Frank said. Investors are telling a lot of those companies "to be ready and be opportunistic.”

Will the IPO market open up?

Since the start of 2023, there has been a change in the type of company that can successfully go public. 

More than half of the 29 IPOs since — and nine of the largest 10 offerings — involved companies with drugs in mid-stage testing or later, according to BioPharma Dive data. By comparison, only six companies without a drug in human trials have priced. They raised an average of about $88 million. Half pulled in less than $10 million. 

The shift reflects a move by investors to safer bets. In 2020 and 2021, a majority of the companies going public were either in preclinical or Phase 1 testing. Now, companies with early, or broad drugmaking technologies are having a tougher time. 

“People with a platform that is five years away from the clinic, that’s just not going to fly in this environment whatsoever,” Christiana Bardon, a co-managing director of MPM BioImpact, said in an interview.  

Gene editing biotech Metagenomi is one example. The company has not yet named a lead drug candidate, but does have partnerships with Ionis Pharmaceuticals and Moderna. Its efforts to go public were being watched by industry observers as a test of whether IPOs were open to earlier-stage companies, noted Tim Ehrlich, a partner at law firm Gunderson Dettmer who advises young biotechs. 

“To really see momentum, we need to see an expansion of the opportunity for companies,” he said, so startups nearing human testing also have a shot.  

Yet, Metagenomi priced at the bottom of its projected range, and has since lost a chunk of its value, adding to skepticism the IPO market will open up. “For the foreseeable future, I would expect more of the same,” Baird’s Perrone said. 

Instead, some say that preclinical companies will have to adapt to get investor attention. According to SVB’s Frank, those startups must have a “real viable path to the patient.” Many have been having conversations with their boards over the last year or two to identify drug prospects that can get them on that path, he said. 

“The patience for investors in some of these bigger stories that are going to take longer just isn’t there in the way it was a few years ago,” Frank said. 

Jeffers adds there appears to be a greater emphasis among venture firms to incubate companies in-house before bringing other investors in. Such an approach is meant to lower risk and sharpen development plans so, when those companies do move forward, they’re “really well baked,” he said. 

“The reality is, the public markets are not qualified to judge a lot of the early science that’s going on,” he said. “It’s a very difficult place to extract value.” 

Will venture funding become easier to raise?

The effects of the IPO slowdown that began in late 2021 quickly trickled down to startups and their venture backers. The road to the public markets got longer, forcing biotechs to raise more money privately and at lower valuations. Investors became more selective. 

The ensuing funding crunch caused a good number of biotechs to shut down or turn to existing investors to survive. Annual reports from Pitchbook, SVB and HSBC all show a sizable drop in venture funding totals over the last two years. 

A resurgent IPO market could change that. If IPOs are available, startups may have an easier time raising the funding that proved so elusive during the pullback. Importantly, those rounds could be raised “at parity or above” the valuations companies received in their last round, said Baird’s Perrone. 

When IPOs are moving along, “companies in the private sector have a way forward,” Pitchbook’s Helal said. That could motivate biotechs to once again pursue offerings.  

Yet some sources working on venture deals say private investors aren’t waiting on an upturn in IPOs. Instead, there are signs they’re already putting more money into biotechs than they were. 

Cohen, of Brown Rudnick, says over the last three months, he’s observed a “significant uptick” in the number of seed and Series A rounds, the early fundings that get young drugmakers started. 

“I'm seeing a willingness to support these new companies in a manner that I haven't seen since the first quarter of 2022,” he said. SVB’s Frank agrees, noting an increase in investments “in general,” not just with early-stage companies. 

The reason, Cohen said, is that a number of companies have either been bought or “petered out,” freeing up the bandwidth for investors to back newer biotechs. Additionally, investment firms that raised funds a few years ago but held onto the money are being pressured by their backers to act, added Jeffers.

SVB’s Frank adds that investors have now had the time to work through their portfolios and decide where to put their cash. They’re also sensing that “there’s more clarity” around the state of the public markets.

“By and large, the private markets are back,” Jeffers said. “The stringency by which we are judging things is higher, but money is definitely flowing.” 

Sponsored content

By Medrio

Gene therapy clinical trials represent a pivot point in medicine, offering hope for individuals suffering from genetic disorders and chronic diseases. 

By targeting the underlying genetic defects responsible for various ailments, gene therapy promises to treat symptoms and potentially offer cures. 

With groundbreaking advancements in AI-driven approaches, innovative trial designs, and the development of novel molecules, the field is poised for unprecedented growth and impact. Recent regulatory approvals pave the way for transformative treatments, offering hope to millions of individuals affected by genetic diseases worldwide. 

Are you leading innovative research efforts? Explore Medrio’s clinical trial solutions to learn how we can support your clinical trials.

Progress within Gene Therapy

The Human Genome Project is one of history's most extraordinary scientific feats. By sequencing and mapping the human genome, the project laid the foundation for the current surge of gene therapy advances. 

The initial lab experiments in 2021 demonstrated CRISPR’s potential as a gene-editing tool. Just over a decade later, in 2023, a CRISPR-based medicine to treat sickle cell disease and beta-thalassemia was approved. This landmark approval ushered in a new era of genetic medicine.

When the FDA released new policies to advance the development of safe and effective cell and gene therapies, the FDA Commissioner Scott Gottlieb, M.D. stated, “By 2025, we predict that the FDA will be approving 10 to 20 cell and gene therapy products a year based on an assessment of the current pipeline and the clinical success rates of these products.”

Innovation in Gene Therapy Clinical Research

The intersection of technology and science is expediting gene therapy clinical research. 

Researchers are uncovering solutions to previously unanswered questions. Current advancements in clinical trials are based on artificial intelligence (AI), trial design evolution, and molecular engineering breakthroughs.  

1. Artificial intelligence

AI breakthroughs have revolutionized the clinical research landscape in gene therapy, promising more precise and efficient treatments. 

• AI algorithms have enhanced the identification of potential gene targets. This method expedites the selection of suitable candidates for gene therapy interventions. 
• Machine learning models allow researchers to analyze vast genomic datasets and pinpoint genetic variations associated with diseases. This advancement in technology paves the way for personalized therapeutic approaches. 
• AI-driven platforms can help predict treatment outcomes. Clinicians can, therefore, tailor interventions to individual patients with greater accuracy and efficacy.

2. Trial designs

Trial designs in gene therapy clinical research have also evolved significantly, adapting to the complexities of genetic diseases and the unique mechanisms of gene-based treatments. 

• Adaptive trial designs, empowered by AI algorithms, allow for real-time adjustments based on accumulating data, optimizing treatment protocols, and minimizing patient risk. 
• Basket and umbrella trials offer a multifaceted approach to evaluating gene therapies across different disease subtypes or genetic mutations. These innovative trial types accelerate the pace of discovery, expanding treatment options for patients.
• Clinical trial protocols may possibly be written for individuals rather than groups of participants. This specificity within protocol writing may enable these trials to investigate treatments for an individual patient while still using objective design. This approach results in evidence-based decisions on treatment. Data from multiple 'N of 1' trials may be pooled for analysis and results ultimately be applied to a larger group. 

3. Molecular engineering

Breakthroughs in molecular engineering are driving exciting breakthroughs in gene therapy. 

In tandem with AI advancements, and refined trial designs, the emergence of novel molecules and focus areas has propelled gene therapy research into new frontiers. 

• Gene editing tools, like CRISPR-Cas9, offer unprecedented precision in modifying genetic sequences to correct disease-causing mutations. 
• Machine learning algorithms are optimizing gene therapy protocols, streamlining the identification of potential targets, and enhancing treatment personalization for patients.
• Enhanced delivery systems are revolutionizing gene therapy by efficiently transporting therapeutic genes to target cells, overcoming previous barriers to treatment efficacy.

Partnering in Gene Therapy Research for a Better Tomorrow

The current state of clinical research within gene therapy is nothing short of exhilarating.

As researchers continue to push the boundaries of science and innovation, the future of gene therapy shines brightly. Today’s clinical research within gene therapy promises to revolutionize medicine and improve the lives of countless patients for generations to come.

Joel Marcus built a real estate empire on the life sciences industry’s steady growth. Over three decades, his company Alexandria Real Estate Equities has amassed tens of millions of square feet of office and laboratory space in drug development hubs like Boston, San Diego and the San Francisco Bay Area.

Those holdings have given Alexandria a front row seat to biotech’s boom over much of the past decade through to the sector’s pandemic highs and more recent downturn.

“Too much money over too long a period went into the industry in a way that created too many companies pursuing too many opportunities. That never ends well,” said Marcus. “What the industry has learned through the shakeout of the last two years is more discipline at the front end of forming companies.

BioPharma Dive spoke about biotech’s outlook with Marcus and with Whitney Snider, a doctor and former Celgene business executive who oversees Alexandria's venture investments. The following conversation has been lightly edited and condensed for clarity.

BIOPHARMA DIVE: Biotech's geographic clusters are well known. Where do you see the sector expanding?

JOEL MARCUS: The key problem non-established clusters have is you need four elements to make a cluster really work. You got to have a great location. You got to have a deep talent pool, both scientific and managerial. You got to have risk capital and you've got to have great science and technology. Very few places have all four of those.

You'll find that in places like Philadelphia, you can start a company there, but you really can't scale. You can't find the talent to scale. We just moved a billing company to San Diego because it ran into that exact problem. It's not an infrastructure problem. It's a talent pool problem that limits new clusters from emerging and succeeding.

If you start a company — unless you have a very boutique operation and you're looking to sell the company — anybody who wants to grow has to think about the talent pool to do that. In drug development, you've got phases of research, development and commercialization. The people that are really talented in those three areas really don't exist in many locations other than the established clusters.

So where do you expect to see biotech growing?

MARCUS: I would say Texas. If you looked at Houston, Dallas and Austin combined, they could become a tri-cluster area — not today, not over the next three-to-five years, but probably a decade from now. You have some really good institutions, a number of new medical schools. But you don't have any depth of talent and you don't have any depth of risk capital there.

Not too many other places would be on my radar.

Biotech is rebounding after a downturn. How does this recovery compare to other cycles in the past?

MARCUS: The market has started to recover, [funding] great entrepreneurs with big market ideas who have proven themselves before. We're starting to see some strong returns of investment. There is now an appetite for IPOs in the public markets.

WHITNEY SNIDER: While some of the venture funding has come down from the peak of 2021, we’re seeing very healthy levels and inflow. This first quarter has been really strong.

If you remove the mega mergers, which we consider over $50 billion, we're seeing a really important recycling of capital and talent back into the industry, which we think speaks to the strength of companies and therapeutics in development.

What do you think will sustain this recovery?

MARCUS: The industry continues to invest through multiple different routes, hundreds of billions of dollars into R&D, and that's been pretty steady.

The pharma companies have on their balance sheets, both in cash and borrowing power, over a trillion dollars today. That's a historical high. They have many great products, although their challenge is to find replacements for the products that are going off patent through the end of the decade. That's why there's been an aggressive pursuit through partnering, licensing and bolt-on M&A by pharma to find these product opportunities.

How has venture capital changed?

MARCUS: They have metered investment and been more disciplined than they were over the past handful of years, understanding the markets aren't there necessarily immediately for exit. And they have to be more disciplined about management teams, strategies, and the appropriate shots on goal.

I think where the pain still lies today is in the public companies, biotech companies in particular. Venture on one end and big biopharma on the other are extremely well capitalized. The challenge today is those companies that went public that either have preclinical data or they're in the clinic, but their cash may not get them to the next value inflection milestone.

Where are you most optimistic?

SNIDER: It's truly early in the game here in 2024. We have seen a strong start for biotech IPOs, particularly those who have clinical stage programs. The next crop of companies going public, weathering in the public markets, hopefully will set kind of a new precedent. We're seeing incredibly impactful areas such as oncology, metabolic, neuropsychiatry. Hopefully those companies will fare well on public markets.

MARCUS: A handful of years ago, nobody would have imagined a metabolic market for the GLP-1 drugs that have emerged. Eli Lilly 10 years ago was a backwater pharma hanging out in Indianapolis. Novo was a pharma out of Denmark that people didn't really know. Now, they’re literally number one with blockbuster drugs at a size no one ever imagined.

Chris Gibson, the CEO of Recursion Pharmaceuticals, thinks the future of drug discovery lies within a ChatGPT-like interface.

At a J.P. Morgan Healthcare Conference reception co-hosted with Nvidia, the tech giant now making inroads with biotechnology investment, the Salt Lake City-based company set out to pitch biotechs small and large on its artificial intelligence software.

In a demonstration of a large language model-based program called LOWE, scientists at Recursion showed how the software can pull together information from animal models, commercially available compounds, and existing research papers on disease targets and molecules. Researchers can also use the software to order materials to start experiments.

LOWE and AI inventions like it are part of a broader bet that advanced computing can knock down some of the barriers that impede drug discovery and development. But there’s considerable skepticism about how much impact such tools will actually have, at least in the short term. Critics note how, even if AI helps identify a promising target or drug compound, the hard work of proving a medicine safe and effective in humans will remain. 

That hasn’t stopped companies like Recursion and Nvidia from investing, though. Early in January, Recursion announced it was continuing a partnership with Nvidia and licensing out its software to help drugmakers discover new targets.

Gibson sat down with reporters from BioPharma Dive, Axios and other publications on Jan. 10 to discuss how machine learning is helping biotechs today. His answers have been condensed and lightly edited for clarity.

ON NAVIGATING A BIOTECH DOWNTURN:

CHRIS GIBSON: It's been a challenging capital markets environment for biotech generally. And the question is "over what timeline are you optimizing for?" We had really fantastic conversations with the board, with leadership. And we've decided, while being prudent stewards of our capital — our burn was pretty flat this year compared to last — that we cannot walk away from the big bets we want to make. That's why we did acquisitions this year. 

You will see us continue to make bets. Ultimately, whether or not Recursion is successful, we're running an experiment that is going to give us or others behind us a lot of data about how one could take a swing at discovering and developing medicines better. But even if it's not us, it's the company behind us. It will absolutely be different in the next 10 years. 

I won't name them, [but] CEOs and heads of R&D from many of the large pharma companies … are starting to make these investments. If you're not already on board with building in this space, in eight years you will look like the equivalent of what a large traditional auto company looks like [now]. 

ON WHERE AI WILL GO IN BIOTECH:

GIBSON: The biggest question is how long it's going to take. There are going to be successes. There are going to be failures. People are going to make some predictions about the industry based on those early data points. 

What has happened in all these other industries, from the chip industry to the automotive industry, will happen in our industry. The fact is ... it's more regulated. And it's a more complex system. It's a question of when and how we're going to bring patients, scientists and the rest of the industry together.

Pie-in-the-sky case is in five years almost every biopharma company is using machine learning and AI to the level we are. But if it doesn't happen in five, it's going to happen in 10 or 15.

ON THE PRICE OF AI-FOUND DRUGS:

GIBSON: It makes failure cheap and easy at the early stage, so we can explore more broadly and every scientist can do five or 10 new programs a day. 

It doesn't mean that they're all going to translate. In fact, 99% of them aren’t, but the failure’s happening like in the first six hours, weeks or months, as opposed to happening six years down the road in Phase 2 or 3. That could still happen — that's inevitable. The question is how can we reduce that failure rate over time. It seems this could help scientists explore more scale. 

In 10 to 15 years, machine learning and AI will dramatically reduce the price of medicines. Today, the industry defends its extraordinarily high prices, because they fail 90% of the time in the clinic and they fail 90% of the time before the clinic. That is fair because it's a decade of investment. 

What if it was three years and 50% success? All of a sudden, a patient population of 500 patients might justify that investment for pharmaceuticals, or you might be able to justify going after 10 diseases at once. If you have all those companies going after all those diseases and being successful, you will have more competition. You will still have a vibrant ecosystem of businesses, because what we're doing is eliminating some of the cost of failure and putting it earlier in the process.

ON EXPANDING MACHINE LEARNING TO CLINICAL TRIALS:

GIBSON: I believe very deeply we will do that. But I don't think it's because we're going to design a trial that's 10 times less expensive.

We're going to pick a target based on much broader systems biology data that on average, across hundreds of targets, will eventually have a higher probability of success. Now, we won't know for any individual target whether they’ll succeed or fail, so it will seem bimodal to people who want to put all that kind of focus on that first readout. But at the end of the day, if you were to go out to our first 10 readouts, and then our next 10, and then our next 100, and do this across all the companies in the space who are starting to use these tools, I think we will bring down the price.

We will still spend a lot of money on clinical trials, because it's a critical thing to do. I don't think we're going to simulate clinical trials for 20 years, but we're going to have synthetic control arms. There's already companies working on that; even large pharma have adopted that at scale. In areas like oncology, we're going to have much better tools, like our collaboration with Tempus, allowing us to actually use data from patients to help identify novel targets. 

Our dream is to go back to the same patient, six or 12 months later, [whose] genetics helped us find a potential treatment, and try to enroll them in a study. You start to close that loop, that molecule is more likely to do well if you are treating the patient who also helped you find the medicine. This is the future: it's creating virtuous cycles of learning and iteration.

An unorthodox life sciences investment firm in mid-May closed its inaugural fund, a $167 million bankroll that will support investments in companies providing pharmaceutical services to young drugmakers. 

Called NewVale Capital and based in Boulder, Colo., the firm backs companies selling the tools startups use to discover, manufacture, and market drugs. It has about $200 million under management, some of which comes from certain special-purpose vehicles, and has completed three initial investments. 

NewVale is run by Todd Holmes, who has two decades of experience investing in private and publicly traded biotech companies at Third Rock Ventures, Gurnet Point Capital and elsewhere. Over that time, Holmes claims he’s witnessed a shift in how drug startups are built, creating a greater need for the companies that support them. 

NewVale joins several biotech investment firms that have recently debuted or raised new funds.

By and large, though, those investors build and back startups that make new medicines, a lengthy journey that can take hundreds of millions of dollars, if not billions, to complete. Those investors have to have long time horizons and typically see returns if their startups go public or get acquired. 

But drug startups are only part of the biotech ecosystem. Many of them don’t have their own labs, computing tools or manufacturing capabilities. As a result, they often turn to service providers, the companies that help young drugmakers run key experiments, make their drugs, and even engage with regulators. 

Holmes argues those companies are now becoming more important. An “evolutionary shift” is underway in the business of drug development, he says. Small- and mid-size biotech companies are running more clinical trials, commercializing more medicines, and staying independent for longer. Because of that, they’re becoming “more reliant on this complex system of outsourced services,” he says.  

“We are in this moment where the science behind novel therapeutics has never been more promising,” Holmes told BioPharma Dive. “Yet we have an out-of-date infrastructure that suboptimizes time, cost and quality to get those drugs to patients.” 

NewVale aims to solve that problem and fill what Holmes refers to as a “crucial gap” in support for these companies. Venture investors are focused on early, unproven technologies, while private equity firms step in to support mature businesses and aim for control. Neither provide “growth” funding to companies already generating revenue but needing more cash to scale up, he said.

“This is an area currently underserved by other investment models and difficult to repurpose from other investment funds,” he said. 

So far, NewVale has led fundings for Aizon, a developer of machine learning software; Argon Manufacturing Services, which helps sterilize and standardize pharmaceutical products; and Beaconcure, which provides software used in data analysis. 

Overall, NewVale intends to put between $10 million to $50 million into about eight companies through its inaugural fund. The remaining five to six investments will be made in the coming years, according to Holmes. 

Arch Venture Partners, one of the biotechnology sector’s most prolific company creators, is raising a new $3 billion fund, according to an early February regulatory filing.

The fund, which would be Arch’s 13th, is being put together less than two years after the firm closed a similar-sized $3 billion raise that was its largest to date. Plans were outlined in a filing Arch made with the Securities and Exchange Commission. The form was signed by Arch managing director and CFO Mark McDonnell.

Arch declined to comment on the filing.

Arch’s planned raise comes at a time of tenuous optimism in biotech. An uptick in dealmaking and the prospect of interest rate cuts in 2024 has fueled a recent rally in the sector’s stocks. There have been signs of life for initial public offerings, too, with eight biotechs raising about $1.2 billion combined this year. More are set to follow.

Arch isn’t alone in raising investment: A number of venture firms closed new funds in the second half of last year, including OrbiMed, Westlake Village Biopartners, Bioluminesence Ventures, Pivotal Life Sciences, Abingworth and Yosemite. Combined, those six funds alone have more than $6 billion to deploy into new investments.

Yet the good signs could be temporary. The Federal Reserve hasn’t yet moved to lower interest rates, although it’s still signalling cuts are coming soon. An election year and geopolitical tumult could bring further financial uncertainty. Funding for biotech startups has also fallen from record highs as investors have become more selective and turned toward safer bets. Many startups and publicly traded biotechs are still struggling to survive.

“I’d put myself in the cautiously optimistic group,” said Arch managing director Kristina Burow, in an interview last month. “The pace of innovation is sky high,” she said, but added that “2024 is probably going to be a roller coaster.”

Still, even against that backdrop, Arch has placed more bets than most. A recent report by investment bank Oppenheimer & Co. found the firm put $2.1 billion into companies last year, the third most of any biotech investor.

In a January report, meanwhile, HSBC’s Innovation banking division found Arch participated in more deals, 11, than any other biotech venture focused on early-stage investments. Those deals included Neumora Therapeutics, a brain drug developer that went public last year, and RNA drugmaker Orbital Therapeutics, which raised one of 2023’s largest funding rounds.

“2023 was a very difficult year. The industry really scrambled,” said Burow, who’s been at Arch for more than two decades. But “our strategy hasn’t changed in the years I've been around.”

Founded in 1986, Arch was an original investor in DNA sequencing giant Illumina. Over the years, the firm has become one of biotech’s most prolific early-stage investors, often participating in cutting-edge areas of science, like RNA interference with Alnylam Pharmaceuticals or genetic medicine with Juno Therapeutics and Bluebird Bio. More recently, the firm has invested in gene editing startups like Beam Therapeutics and Tome Biosciences.

While Burow is concerned about the broader economy, she’s still expecting money to flow into biotech in 2024, just at a slower pace than during the sector’s peak.

“This my third downturn. It’s not an unprecedented series of events,” she said. Though there is “some economic instability, you have drugs and innovation coming from biotech and reaching patients at an accelerated pace with, I think, bigger impact.”

Before Ketan Patel was a partner at F-Prime Capital, one of the biotechnology sector’s most well-known investment firms, he was an aspiring doctor. 

Like other life sciences investors with a medical background, Patel is well familiar with the myriad diseases that ravage the human body, and the lack of drugs available to treat some of them. 

Patel’s training in internal medicine imbued him with a drive to help. His curiosity about drug development led him to realize there were ways to help patients outside of a physician’s office. After dabbling in pharmaceutical consulting, he was contacted in 2007 by a headhunter looking for people to join a venture firm affiliated with the parent company of financial services giant Fidelity Investments.

Patel has been a part of that firm, first known as Fidelity Biosciences and now F-Prime, ever since. Over that time, he’s invested in and sat on the boards of more than a dozen drug companies and medical device makers. Some of his firm’s investments, like Beam Therapeutics, Aclaris Therapeutics and Prime Medicine, are publicly traded. Others, like Ivenix and Vicept Therapeutics, were bought by larger companies.  

“This job is a dream job,” Patel said in a mid-2023 interview with BioPharma Dive. “You’re meeting different companies and people of diverse backgrounds. They're people who are thinking out of the box, who want to bring medicine and drug discovery forward. You're always learning something new from experts in their field. What's not to love about that?”

BioPharma Dive spoke with Patel about his experience finding and creating new biotech companies. This conversation has been lightly edited and condensed for clarity.

BIOPHARMA DIVE: How do you know when to invest in a company?

KETAN PATEL: Some of it just happens to be timing. Most of what we're doing – probably more than 75% – is Series A and seed company formation. We try to spend time looking at really high-level unmet needs. What therapeutic areas are they and how do we work backwards from that? 

The other ways are technology-based. Some of the really early investments we made in gene editing with Beam and Prime Medicine, those were really technology-driven. CRISPR has brought a change to drug discovery and development. There was a next-step function on top of that with gene editing. Those investments were driven by the science.

F-Prime made a number of significant investments over the past year despite a downturn in the sector. How did you go about navigating that environment?

2020 and 2021 were very different from 2022, and even the beginning of the first half of 2023. But the fundamentals in life sciences haven't changed. The capital environment has changed to a certain extent. 

There's still a lot of unmet need out there, really common diseases and rare, genetically driven diseases. The way we look at it is, if you can get drugs that address some of these diseases, at the end of the day, everything will work out from the investment perspective, as long as you take the right steps. 

Historically, we've done early-stage investing and we like taking things from academic institutions and helping drive them. But if it takes a long time, you always have to be thinking about when the next window is.

We’re looking at it as, in the next two to three years, the window will get juicy again. You can raise capital and the companies that you're building today can get to the point where they’ll need a lot more because they'll be in late-stage clinical [trials]. 

You mentioned working with academic labs to advance their research. Why invest in them instead of more experienced biotech company creators?

Because it takes so long to get through a regulatory process, [biotech] has almost had  “reverse ageism,” where it's [the] older, the better because you have a lot of experience. You've been through maybe one or two drug discovery cycles. 

In the last seven years or so, the capital markets were really accommodating. We saw a lot of novel technologies coming out of labs, with first-time entrepreneurs. At the end of the day, those entrepreneurs are often the postdocs in the labs where the technology was discovered. Who knows it better than some of those folks?

We have started companies behind first-time entrepreneurs. There is a lot more that goes into building the company over time. It does require having a lot of support [from] people who are not necessarily first timers in the drug discovery business. [But] there aren’t enough entrepreneurs out there to go after unless you start chasing first-time entrepreneurs as well.

Within drug [development], there are really different skill sets, from clinical development, to preclinical development, regulatory and manufacturing. When we’ve got a brilliant postdoc coming out of the lab, the first thing we tell them is to put together a team that hits those pieces. That's the most important thing, because those are the people that are going to help you get from point A to a drug. 

Many of your portfolio companies are based outside of the prominent biotech hubs in Boston, San Diego and San Francisco. Why?

We’ve had a relationship with a venture fund called Eight Roads, a group that has Fidelity as their main limited partner. They've always been focused outside of the U.S., and have, over time, done quite a bit of healthcare and life sciences [investing]. We had boots on the ground and people that were like-minded with us. What we don't believe in is trying to invest from afar without a local presence, it's really hard to do.

The more we did, the more we learned that innovation is truly global. Historically, the belief has been that innovation, at least in our space, comes from Boston, San Francisco, North Carolina, some San Diego, for a while Minneapolis. I think that’s true without a doubt, but the academic institutions, especially in China, are rapidly developing and catching up. A lot of folks who did their PhDs and postdocs in labs in the U.S. or London have now gone back and are academics there, so we're seeing innovation come from everywhere. 

A great example is a biologics company called Innovent, which we started in our offices here [in the U.S.] It’s a public company now, and has multiple drugs approved – they have China's first or second PD-1 [inhibitor].

We continue to look at the U.S. and Europe as hubs for life sciences. Then there's the emerging markets, which are primarily China and India for us. We look at Japan as well, even though it’s not an emerging market. It's emerging in that it's starting to develop less of a big pharma and more of a biotech culture.