A recent research conducted by PwC and CB Insights found that venture capitalists invested $10.6 billion into healthcare start-ups in the first half of 2018, with $5.3 billion spent in 216 healthcare deals in the second quarter of the year – a 21% increase from the first quarter and a 49% increase from the same quarter last year. These numbers mean that the healthcare sector comes second (behind IT) in terms of fundraising, and if this zest for investment continues with the same pace, 2018 could set a record for highest-ever venture capital put in the industry.
Healthcare is attracting more “crossover investors” such as hedge funds which support start-ups all the way through their initial public offerings (IPOs). According to the Nasdaq Stock Market’s reports, the third week of June alone saw eight biotech companies go public, securing $645 million. As a result of these investments, start-ups have become the main drivers of pharma innovation, bringing in 63% of all new prescription drug approvals during the last five years, according to healthcare investing specialist HBM Partners.
Indeed, funding was the main topic in the media coverage of pharma start-ups in the last three months, as our analysis has established:
Journalists emphasised that in spite of market volatility and ongoing debates about drug pricing, the year has been particularly strong. Much of the coverage was dedicated to pharma giants investing in new companies, and some analysts noted that this growing trend constitutes a “paradigm shift in big pharma”. The conclusion drawn in many reports was that industry giants are taking a more entrepreneurial approach by launching venture capital funds and supporting start-ups to bolster their own drug offering.
Many articles explain this process by pointing out that pharma heavyweights have been struggling with the development of truly innovative products, and want to reduce the risks in their in-house research and development processes. As Tom Heyman, president of Johnson & Johnson Innovation, the oldest corporate venture fund in the sector, said: “In today’s world, trying to get access to external innovation is extremely important to stay competitive.” He clarified that the accelerating rate of innovation makes it very difficult for a single company to stay in tune with everything by itself.
After investing, mergers and acquisitions (M&A) was the other major topic in the coverage of pharma start-ups. A review by BioSpace found that $100 billion was spent on M&A deals in the sector so far this year. Commentators concluded that the primary reasons behind this big sum are the changes in the US tax code, which bring the corporate tax rate below 20%, allowing pharma giants to pour more money into deals and to obtain assets from new players to restore growth levels and fuel innovation.
The leaders in M&A in the first half of the year were Celgene and Sanofi. Celgene entered into a $7 billion acquisition of myelofibrosis start-up Impact Biomedicines, while paying around $9 billion for the 90% of cancer firm Juno Therapeutics. Sanofi, on the other hand, paid $11.6 billion for Bioverativ, which develops treatments for hemophilia. Meanwhile, another acquisition to get the media’s attention was Eli Lilly’s $576 million deal with Montreal-based oncology startup AurKa Pharma.
In terms of launches, there was a good amount of reports about Zhi Hong, previously the head of GlaxoSmithKline’s infectious disease unit, starting his own venture Brii Biosciences with $260 million in committed capital to bring innovative medicines to China. In addition, Bill Gates’ name guaranteed the coverage of a new start-up for drugs and vaccines set up by his foundation and called The Bill & Melinda Gates Medical Research Institute. Aiming to develop new medicines and vaccines for malaria and tuberculosis, it will be headed by vaccine expert Penny Heaton, who joined the foundation in 2013 from Novartis. Immuno-oncology startup Oncologies was also mentioned because it was founded by Eli Lilly’s former VP of oncology, Laura Benjamin.
News about people moves circled around senior figures, for instance Norbert Bischofberger, who has a new position as head of Cambridge, Mass.-based start-up Kronos Bio which speicalises in therapies modulating historically recalcitrant cancer targets. Bischofberger was formerly the head of R&D and chief scientific officer at biopharmaceutical giant Gilead Sciences.
The move of Novartis’ ex-head of US oncology Bill Hinshaw received more attention. He took the helm at start-up Axcella Health, which strives to combine “endogenous metabolic modulators to develop powerful new medicines with the goal of addressing metabolic dysregulation by safely reprogramming cellular physiology with unprecedented multifactorial effects”. Writing about Hinshaw’s new position, journalists noted that it is one of a few examples of big pharma executives jumping to new companies to work on novel research and be at the forefront of scientific innovation.
As successful start-ups are often being acquired, there were just a few reports about the expansion of new ventures. Obamacare-focused health insurance firm Oscar Insurance will begin operating in four new markets next year, and these plans were presented in the media as a bet on the health law’s survival in spite of the political uncertainties around it. Meanwhile, Roivant, which in-licenses drugs in late-stage development, entered the Chinese market by opening a subsidiary, Sinovant Sciences.
Big pharma in the front row
Our analysis also found which pharma giants were mentioned most often in the context of their engagement with start-ups.
Both Pfizer and Merck invested $26 million in precision medicine startup Strata Oncology, which was founded in 2015 to utilise molecular profiling and precision therapy trials with routine care for cancer patients. Prem Tumkosit, Investment Principal at Merck Global Health Innovation Fund, said that “Strata’s platform will generate and leverage clinical-genomic data to drive precision trial enrollment and advance cancer care.”
Pfizer also received large media shares for announcing the start-ups it has selected to include in the second year of its London Healthcare Hub, among which are Medopad, an app data sharing during clinical trials or care, Inhealthcare, a remote patient monitoring firm, and Perfect Ward, an app for healthcare inspecting results.
Merck’s own accelerator programme did not get the same amount of attention, although it also singled out interesting start-ups such as Intelag, a software analysing field conditions, Biotx.ai, a machine learning tool for patterns in biomedical data, and ChemAlive, a software for quantum chemistry solutions.
Another well-documented event was the partnership between Novartis, entrepreneurship organisation Beta-i and Deloitte Digital, which created techcare, an accelerator dedicated to start-ups developing novel technologies, products or services. Most reports added that the Novartis Venture Fund handles investments from seed- to later-stage life sciences companies and distributes $800 million in committed capital.
Roche featured in the coverage for its intentions to buy the rest of the shares in cancer genetics firm Foundation Medicine (FMI) for $2.4 billion, after it already bought 56% of that firm in 2015 for $1 billion. Working on genomes, Foundation Medicine will help Roche distinguish molecular alterations in cancer cells and tie them with targeted therapies, immunotherapies and clinical trials.
In a similar vein, GlaxoSmithKline obtained a $300 million stake in Silicon Valley genetic-testing company 23andMe, which will assist them with genetic data for identifying new drug targets and patients for clinical studies. Hal Barron, GSK’s chief scientific officer, will concentrate on the immune system, genetics and advanced technologies.
Johnson & Johnson stayed true to its reputation for making early bets on companies with the potential to serve certain market niches. It is building a network of incubators called JLABS with shared work spaces and labs with chemistry, biotechnology and prototyping equipment for scientists, with the intention to generate ideas and turn them into business.
AstraZeneca signed an agreement with Russian technology business developer Skolkovo Foundation to create a corporate accelerator programme for biomedical start-ups dealing with treatments and diagnosis systems for cancer, cardiovascular disease, kidney disease, respiratory and metabolic illnesses, and autoimmune diseases.
Takeda’s partnerships with startups is focusing on three therapeutic areas – oncology, gastroenterology and central nervous system diseases, while Sanofi takes a different approach by running company creation vehicle Sanofi-Sunrise which co-invests with venture capitalists in new technology solutions. Sanofi’s vice president of global R&D, Kathy Bowdish, said: “The idea is to access science early and co-create a company that we can later invest in and partner with. It helps us bring in new products in Sanofi’s pipeline. The benefit for entrepreneurs is that they get to work with our senior scientists and scale up production quickly. We often invest and license their technology as well.”
All the investment in cancer-related ventures has made oncology the main research area discussed in the coverage:
For more insights on the way oncology is presented in the media, take a look at our infographic which tracks down prominent issues, companies, products and executives in the UK.
Another widely discussed subject around start-ups was gene therapy, a treatment in which a patient’s immune system cells attack cancer cells. Its popularity is growing, and Steven Rosenberg, head of the Surgery Branch in NCI’s Center for Cancer Research (CCR), an immunotherapy pioneer who first reported successful cancer treatment with CAR T cells, said that there is going to be dramatic progress beyond people’s expectations.
Within gene therapies, a family of DNA sequences called Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR) has proved to be an exciting research area, and investors are eager to support and start-ups working on it and to take advantage of the many opportunities of gene editing. CRISPR-specialised start-up Inscripta has raised almost $100 million before it has actually launched its first product because of the applications of gene-editing technology for the therapeutic, energy, food and agriculture industries.
Like almost any industry today, pharma is facing a massive influx of data, and it looks for efficient digital tools often developed by external experts, such as start-up Nano Vision, which aims to make important health data more accessible and to step up the development of new treatments using blockchain technology. Dispatch Labs is another example for a company using blockchain in healthcare, in this case to deal with logistical and organisational challenges.
Pharma start-ups need more exposure
Unlike pharma giants, the names of successful start-ups did not get that many mentions:
Grail and Allogene Therapeutics became known for striking the two largest venture deals in healthcare – each of the two firms raised $300 million. Grail is striving to revolutionise oncology by shifting the focus from treating cancer to averting deaths by early detection with a blood test that can detect cancer when it is still curable. The firm employs gene sequencing to find tumor DNA in the blood, and its investors included Bill Gates and Jeff Bezos.
Allogene works on “off the shelf” cell therapies. It was founded by entrepreneurs Arie Belldegrun and David Chang, who launched clinical-stage biopharmaceutical firm Kite Pharma before that and managed to sell it to Gilead for $11.9 billion. Kite came up with personalised CAR-T treatment for lymphoma, but it dominates the coverage for its decision to acquire gamma delta T-cell receptor (TCR) start-up Gadeta, which emerged in 2016 with $8.1 million in funding.
Fromed last year, Miljon Medi, which uses a B2B digital platform to connect generics pharmaceutical manufacturers to the entire industry, was acquired by tech company GlobalSpace Technologies, while Axovant is creating a gene therapy for Parkinson’s. Eli Lilly spent $110 million for the acquisition of oncology company AurKa Pharma, and MaaT Pharma, a clinical-stage microbiome therapy company, signed a licensing agreement on microbiome therapy with SATT Lutech, a private technology transfer company.
The rest of the start-ups in the coverage were mentioned only once or twice, which goes to show their insufficient PR efforts. Naturally, the more popular ones are those entering lucrative deals or attractive significant investment, but start-ups need not rely on such successes to build up a media presence in the early stages of their formation. The emergence of fresh names on the scene might also be beneficial for the shaky reputation of the pharma industry in which they operate.
The situation is not the same with start-ups in other industries – in finance, for instance, new firms get more coverage, as our survey of the financial sector has demonstrated. This is in part due to the fact that fintech companies are much more eager to promote the innovativeness of their solutions – something which pharma start-ups would be well-advised to do, especially since the pharma sector has a reputation for lagging behind with innovation and for being reluctant to take risks.
Pharma heavyweights should continue to spread the word for its investments in new innovative firms, but they should also promote more actively those firms themselves. As we established in our previous healthcare feature, big pharma is facing mighty competitors coming from the big tech ranks. Boosting the brand awareness of their new allies will be of great help to pharma giants – with start-ups having become the main drivers of innovation in this sphere, promoting them would mean promoting the ingenuity of the whole industry.