The Biotech Venture Capital Market in 2023

Biotech

Jeff Bartel

Chairman and Managing Director

Venture capital investments in the biotech industry have steadily increased since 2015, with a significant spike in Q1 2021. Although these investments dropped slightly in the following quarters, investors should not be too concerned. We will discuss the causes behind this drop in VC investments and explain why biotech is still a valuable investment.

Biotech Venture Capital Trends

Over the last three years, we have seen a significant spike in venture capital investments in the biotech industry. In 2019, VC biotech investments stood at $1.5B in Q1 and continued to rise, peaking at $9.1B in Q1 2021. However, since then, there has been a slight decrease in VC funding going to the biotech sector.

Despite the recent decrease in VC funding, billions of VC dollars still impact the biotech industry. Investors seem particularly interested in the therapeutic-based biotech sector. This biotech research and development area is so popular that VC companies worldwide invested more than $52B into this field from 2019 to 2021.

Some of the most popular therapeutic-based biotech research areas for investors include:

  • Cell Therapy: $7.7B investment from 2019-2021
  • Next Generation Gene Therapy: $7.6B investment from 2019-2021
  • Precision Medicine: $4.5B investment from 2019-2021
  • Machine-Learning Drug Discovery: $4.4B investment from 2019-2021
  • New Drug Delivery Methods: $4.0B investment from 2019-2021

VC investors in biotech also trend more toward startup biotech companies. In fact, from 2019-2021, nearly two-thirds of all VC funding in biotech went to startup companies.

The Drop in Biotech Venture Capital and the Rebound Potential

While VC investments in biotech have dropped since its big spike in Q1 2021 ($9.1B), Q1 2022 ($7.6B) investment levels are still 58% higher than investments in Q4 2020 ($4.8B). This drop in VC funding is partly due to uncontrollable global events, including inflation concerns and unstable markets.

One thing is sure; VC investors are becoming more selective regarding their investment choices. While investments in biotech can provide rapid growth once the product makes it to market, investors may be looking for more movement in the development phase.

There are currently over a thousand biotech trials underway, but out of the 50 drugs approved by the FDA in 2021, only 2 of these drugs were in the biotech field. While this may seem like a small number, it is a significant advancement for the biotech industry and could signify what is to come.

Test tubes representing an biotech venture capital investment

Investment in Cell and Gene Therapies

Biotech is a booming industry with plenty of room for growth. More than 3,000 biotech firms were formed in 2021 alone. Studies show that the industry is set to grow by 30% by 2025. In addition, 21 cell therapy and 31 gene therapy launches are on track for 2024.

There has been a shift in the type of biotech investments that interest VC investors. In early 2020, many VC investors still leaned towards traditional biotech areas, such as microbial. In 2021, however, there was a significant shift in VC investors to next-generation cell and gene therapy investment opportunities. Considering recent advancements in this field and a few successful launches, venture capitalists will likely continue to invest in this emerging technology.

Funding for Machine Learning in Drug Research

Biotech advancements can be a costly endeavor. Estimates show that the research and development phase alone can cost up to $2.3B and close to another $1M to get the product to market. Fortunately, investments in machine learning and artificial intelligence by the biotech industry are helping to cut these costs, which results in higher rewards for venture capitalists choosing to invest in this biotech sector. Studies show that machine learning can help reduce preclinical costs by up to 40%.

Cost-savings are just some of the benefits machine learning offers. It also can help biotech companies speed up the research and development phase. This advanced technology can help take some guesswork out of the development phase by transforming big data into analytical results. Moreover, machine learning is so impactful that experts anticipate biotech companies investing in machine learning may bring as many as 50 novel therapies to market over ten years.

Biotech companies investing in machine learning technology are already grabbing the attention of VC investors. In combination with small molecule drug discovery, machine learning has overwhelmingly received most of the VC funding.

Despite the recent drop in VC funding, the value of the biotech sector is far from over. With machine learning and artificial intelligence helping to save costs, speed up the research and development phase and simplify the launch phase, a surge in biotech products coming to market is likely on the horizon. As a result, this could be the perfect time for VC investors to invest in biotech before the market is saturated.