Companies inked 204 deals in the fourth quarter of 2023 with venture capital funding slipping to $6.3 billion from $7.8 billion in the third quarter last year, according to market data firm Pitchbook.
Pictured: Illustration showing a downward graph trend/iStock, lerbank
Biopharma venture capital activity in the fourth quarter of 2023 saw a downturn, capping off a disappointing year for sector funding as a whole, according to a new report from market data firm Pitchbook.
VC in biopharma last year “saw a pivotal recalibration” as $29.9 billion was allocated across 920 deals. Activity in the deal space “declined modestly” in the latter half of 2023, according to Pitchbook, with $6.3 billion spread over 204 deals in the fourth quarter. This was down from $7.8 billion in the third quarter spread across 212 deals, a 19% quarter-over-quarter decline in deal value in Q4 2023.
“The year’s end marked a significant correction from the explosive growth experienced amid the height of the COVID-19 pandemic, with the exit distribution echoing a semblance of stability compared with 2022, featuring 55 IPOs and 39 acquisitions,” the report stated. “Venture capital funding trends indicated a cautious yet discerning investment approach, with an increased median interval between funding rounds, underscoring a preference for companies showcasing mature clinical data.”
However, Pitchbook did note that the exit activity, which includes mergers and acquisitions and IPOs, raked in $18.3 billion across 94 exits. The report states that this is due to a “strategic patients and selective investment ethos” that was present in 2023. While the fourth quarter saw $1.8 billion from 24 deals, this was due to companies choosing to postpone announcements to coincide with the J.P. Morgan Healthcare Conference and the subsequent conferences in San Francisco.
As for the exits, the deals capped off later in the year represent a “strategic pivot” to quality and clinical validation. Pitchbook noted examples such as Carmot’s $2.9 billion acquisition by Roche and BMS’s $4.1 billion buy of RayzeBio. Pitchbook noted that this trend and strategic collaborations, including Isomorphic Lab’s deal with Eli Lilly and Novartis, show intense interest in computational drug discovery efforts.
“Isomorphic Labs may serve as the bellwether for future AI biotech startup funding despite being a corporate spin-out from Alphabet,” the report said.
Pitchbook stated that startups such as EvolutinaryScale and Inceptive Bio—which raised $40 million and $120 million, respectively—can expect the same success as Isomorphic labs in getting extensive partnerships. However, investors need to be cautious if the space becomes akin to OpenAI’s dominance, which means there will be very few AI biotech deals due to talent scarcity.
Ultimately, despite a decline in activity in the fourth quarter of 2023, Pitchbook highlighted strong “enthusiasm” for the biopharma industry in AI and other hot sectors such as weight loss.
Tyler Patchen is a staff writer at BioSpace. You can reach him at tyler.patchen@biospace.com. Follow him on LinkedIn.
