Venture Capital Funding Confirms Transition to Large Molecule Assets

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As the major source of funding for early stage companies, the Venture Capital (VC) sector can be viewed as a window into tomorrow’s therapies. Although absolute VC spend on Research and Development (R&D) is dwarfed by that of the Global Pharmaceutical sector, the overall importance of early stage funding is critical for a number of reasons:

a. Research and Development outlays constitute a significant proportion of overall VC funding (likely around 70%);

b. The early stage sector outsources most of its R&D expenditure to contract service providers.

c. VC funding is generally sufficient to fund early stage and selective mid stage trials. Indeed as we have shown in a recent Trend Report, Follow The Money-The Outlook for Outsourced Spending on Early Development Services, in the first half of 2016 more than 40% of Phase I and Phase II trials were sponsored by VC backed companies.

The PharmSource Lead Sheet allows clients to identify those companies that have recently received venture capital funding and are primed to initiate clinical trials even in the absence of a formal press release. Examining the data for the last two years is instructive:

Overall companies with a large molecule focus received some 58% of all VC funding in 2016, an increase from the 46% received in 2015. In contrast, funding of early stage companies with a small molecule emphasis declined to around 40% of the total in 2016, from 46% in 2015.

This data was mirrored in the number of early stage companies funded by the VC sector: Small molecule players declined by a quarter from their 2015 levels with 58 companies receiving funding in 2016. By contrast the number of large molecule companies increased slightly from 60 in 2015 to 63 last year. On a per-company basis the biologics sector received 35% more funding than companies with a small molecule API bent ($30.4m versus $22.3m). Again this is consistent with the higher cost of clinical development for large molecule drugs.

While the large molecule API sector is in the ascendency the data described above represents a sector of importance to the potential contract services market, as opposed to the entire market. Several publicly traded custom fine chemicals companies have posted double digit growth and unveiled expansion plans. However for the burgeoning number of contract biologics manufacturers, the early stage sector represents a prime opportunity.

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Saul is PharmSource’s Director of Market Intelligence. He brings over 15 years of experience in market analysis, having worked in business intelligence roles at Evaluate Pharma, Cardinal Health (now Catalent) and Abbott Laboratories. Prior to that, he was a Post-doctoral fellow in Neuropharmacology at the Universities of Birmingham and Bristol.  Saul holds an MSc (Neuroscience) from the Institute of Psychiatry (King’s College London) and a D.Phil in Neuropharmacology from the University of Oxford.

More posts by Saul Richmond