Life Sciences

Life Sciences in a Changing World: Startup Outlook Through 2020

As early-stage, high-growth startups prepare for the future, venture capital and partnerships will look different—but opportunity is still out there.

Life sciences startups have always been on a mission to improve human health through innovation. The global impacts of the COVID-19 crisis have made the importance of that work clearer than ever. Whether its work directly relates to virus relief efforts or not, every startup in this industry has felt the impact of the crisis. And for startup leaders looking toward the future, it’s important to understand how funding plans could change. 

Peter Meath, Co-Head of Healthcare & Life Sciences for J.P. Morgan Commercial Banking, notes that the pandemic has drawn attention to the space, thereby creating an enormous tailwind of opportunity. And this isn’t just contained to companies focusing on COVID-19—it’s across the board. The public is increasingly recognizing the novel innovation generated by life sciences startups, and investors have a renewed desire to deploy capital in the space.

The funding environment is evolving, and it’s not clear where it will land. Until COVID-19 shocked the economy, valuations were on the rise, partnerships were booming, and startups were increasingly accessing liquidity through venture capital and the public markets.

Now, as early-stage, high-growth startups seek to chart their path forward, here’s a look at the evolution of two key funding areas—venture capital (VC) and corporate partnerships—with a deep dive into key subsectors.

Venture Funding

Throughout the 2010s, life sciences saw a nearly uninterrupted boom in venture investment. In 2018 and 2019, funds were flush with capital earmarked for life sciences companies, and VC funding for healthcare set record highs as a result. Early-stage capital deployed has largely trended upward for several years, with bigger VC funds funding increasingly larger amounts of capital into Series A and B rounds. In 2019, 15 mega-funds closed deals, according to PitchBook data.

Funding raised by venture capitalists in healthcare and life sciences in the first half of this year may be on pace to surpass those raised in 2018 and 2019. The trend in very large financings or “mega-rounds” has not abated as much as expected during the crisis. That means capital is still being deployed at near record levels, though the pace of new financings has continued to flatten. 

Source: DealForma Database. Updated through July 1, 2020. 

There appears to have been a structural shift in the venture funding landscape over the past few years, Meath says, with rounds increasing in size across multiple therapeutic areas and companies accessing the public market at earlier and earlier stages.

John Whittaker, Managing Director, Healthcare for J.P. Morgan Investment Bank, says the industry is also seeing robust activity in crossover investing pre-IPO, where public investors enter the private market to engage with companies at earlier stages of company development. Private firms may consider strategies around when is the best time to approach these investors and how they fit in an overall capital strategy. “They’re committing meaningful amounts of capital to private investments in this space, and it is a strategic part of the overall fundraising ecosystem to consider,” he says.

Looking ahead, Meath says that while a crisis like the coronavirus outbreak has never been seen before, it has set off a series of events similar to other downturns.

“On the venture side, in every downturn you’re going to see a shifting of capital trends,” Meath says. “For example, attracting new investors from an A to B round can be more difficult, and venture investors might retain more capital so they can double down on current portfolio winners. You’re naturally going to see the structure of existing financings change as the leverage tends to move from the entrepreneur to the venture fund.”

“Carefully thinking through your capital options and investor syndicate early on can pave a path to longer-term access to capital.” 

John Whittaker, Managing Director of Healthcare, J.P. Morgan Investment Bank

It’s worth noting that investing in life sciences is quite different from other venture markets. Macroeconomic factors such as consumer demand, facets of GDP growth and even unemployment numbers do not typically hold sway in the ultimate success of many of these companies. Timelines for unlocking the value of innovation also tend to be longer for life sciences investors than investors in other sectors—hence the need for adequate runway. The path to growth and success is long and data-intensive, and investors behave accordingly.

“These are companies that take years and years to get going,” Meath says. “I think you have to look at it through that lens of, yes, there are some immediate needs right now for the pandemic, but venture funding, by nature, is not an immediate exercise.”

Partnerships and Licensing

From biologics to gene therapy, life sciences startups have developed a wave of promising new innovations in recent years. And because large pharma and biotech firms didn’t always have these paths to innovation, they moved to license new therapies by partnering with startups. The total deal value for biopharma, platform, medtech, manufacturing tech and diagnostic partnerships exceeded $110 billion in 2019, DealForma reports, which is three times the total a decade earlier.

“Heightened collaboration is a hallmark of today’s industry,” says Whittaker. “Big pharma and biotech players don’t necessarily have to buy innovative companies to get access to emerging modalities.” He says partnerships can be a strategic step for early-stage life sciences companies to seek both validation and financing.

R&D partnerships for therapeutic platforms and biopharma, for example, totaled $34.5 billion in 2009. In 2019, it was nearly three times that, according to DealForma. Increasingly, these R&D partnerships have been signed in earlier phases, even before a treatment is in preclinical trials. 

As large firms assess how to respond to the shifting economic landscape, Meath has seen a greater pace of partnership activity, particularly for pharma and biotech companies in the first two quarters—a trend he thinks may continue.

At the same time, startups could be more inclined to pursue these deals now than they were before, given that venture funding has dried up. “Maybe now partnering and bringing in some non-dilutive financing is actually a more preferable route for smaller companies,” Meath says.

Subsectors in Focus

Biotech and Biopharma

The last decade has seen a wave of new technologies such as biologics and gene and cell therapies. These developments were highly coveted by large pharma and biotech firms, which often lacked them among their core competencies. Meath says areas such as oncology, rare disease and the central nervous system will continue to be a focus for long-term pipelines and value. 

Medical Devices

While not many venture funds focus on this subsector compared to others, a medical device company can measure its success by whether doctors use the core product, which makes results easier to measure and future performance easier to predict. Whereas biotech presents a data-driven value proposition that often relies on the prediction of future outcomes rather than current results, medical devices are procedurally driven.

Tools and Diagnostics

COVID-19 shined a bright light on the diagnostic space. Total venture funds in this subsector reached the highest first half year in recent years.

“We’re seeing more venture investment because people have realized that in a crisis like this, or when some new affliction presents itself, speed, accuracy and remote monitoring are key,” Meath says.  

Generics and Specialty Pharma

Pharma companies are responding to the crisis while continuing to pursue their long-term strategies of building a pipeline of new therapeutics and drugs. For generics and specialty pharma, most of the deal action is typically in asset sales for a basket of brands and formulations.

Contract Research, Development and Manufacturing Organizations

Specialization is an ongoing trend within contract research, development and manufacturing organizations, or CRO/CDMO/CMOs.

Future in Focus

The current environment is unlike any we’ve seen before, but life sciences companies are well-poised to develop the innovations to weather this crisis and future challenges. Whether they’re tapping into the power of light to disinfect equipment or developing new drugs, these companies are doing essential work to benefit their communities and the world.

Learn more about how J.P. Morgan can help propel your business forward. 


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The above statistics have been obtained from external sources deemed to be reliable, but we do not guarantee their accuracy or completeness.

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