Bear market hits VC funding of innovative drugs in Europe, losing pace in US

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According to GlobalData’s Pharma Intelligence Center Deals database, total Europe-based biotech venture capital funding for innovative drugs is 4.5 times ($56 billion) less than the total raised in the United States from 2017 to 2022 (until May 27). The United States and Europe, however, saw venture capital funding hit an all-time high last year, with too many early-stage biotechs going public with inflated valuations.

In the current bear market, indices such as the US Nasdaq Biotechnology Index (NBI) and Europe’s Euronext Next Biotech Index (BIOTK) have seen volatility, with small- and mid-cap biotech stocks now plummeting. Investors therefore seem to be taking a more selective approach to investing in public biotechnology markets. Could these challenges further widen the gap in venture capital financing between Europe and the United States?

Europe-based biotechs historically raise smaller VC funding rounds for innovative drugs, on average five times less for each quarter than their US counterparts since 2017, according to GlobalData’s Pharma Intelligence Center Deals database . Cumulative US-based biotech venture capital funding for innovative drugs totaled $72 billion, while Europe lagged with just $16 billion, from 2017 to 2022 (up to to May 27).

The largest venture funding rounds raised by US-based biotech companies for innovative drugs last year include EQRx which raised $500 million and went public in December with late-stage oncology assets close to US Food and Drug Administration (FDA) approval. Neumora Therapeutics has also raised $500 million with its Phase II and Phase I neuroscience drugs. The biggest venture funding rounds raised by Europe-based biotech companies for innovative drugs last year include UK-based Exscientia, which raised $225m and $40m for use artificial intelligence to design drugs for patients. Another UK-based biotech, Centessa, has raised $250 million to advance its portfolio of highly validated programs. Exscientia and Centessa both went public last year, listing on the US stock exchange NASDAQ.

The biotech venture capital funding gap between Europe and the United States is widening, with European investors known to be more conservative when investing in non-revenue-generating ventures compared to those in the United States . Many European biotechs have therefore chosen NASDAQ or the US-based New York Stock Exchange (NYSE) to list their companies, where initial public offerings (IPOs) are significantly larger than on European stock exchanges, making it possible to further finance their growth.

Falling biotech indices and low biotech valuations in the wake of the Covid-19 pandemic mean US companies looking to buy could see European biotech start-ups as rich picks. This could lead to the loss of the European biotech sector to the United States and, moreover, to the Asia-Pacific (APAC) region, which is already beginning to overtake Europe in venture finance, unless Europe seeks to improve investments in biotech venture finance, especially those with late-stage assets to increase the chances of generating income once listed on the stock exchange.

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