Private equity deals in biotech down over 50% YOY in Q1

Private equity and venture capital investment in the global biotechnology sector was down to $4.1 billion across 162 transactions in the first quarter of 2023, compared to $8.83 billion raised by the sector across 284 deals in the same period in 2022.

This is the eighth straight quarter that the value of biotechnology investments involving private equity has declined from a peak in the first quarter of 2021, data from S&P Global Market Intelligence shows.

For the full year 2022, deals worldwide, including whole company, minority stakes, asset acquisitions and rounds of funding totaled $25.51 billion, 47% lower than the $47.7 billion in 2021. The number of deals slipped 17% to 913 from 1,095.

The US and Canada pulled in the largest share of the capital, raising over 60% of the total value.

In 2022, biotechnology clearly led the other healthcare subsectors in raising private equity capital.

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'Complex path forward'

In the year to May 31, biotech has received $7.15 billion in capital from private equity and venture capital investors across 290 deals, Market Intelligence data shows.

The industry is facing a "complex path forward" following a normalization of revenues in 2022 from the surge in 2021 as pandemic-led demand for vaccines and antiviral treatments wanes, according to EY's Beyond Borders: EY Biotechnology Report 2023, published June 6.

In the US, big players will have to find new income streams as they contend with patent expirations of products generating billions of sales dollars. Patents of over 20 products worth nearly $200 billion in annual sales are expected to expire by 2030, with five expirations expected in 2023, according to the report.

Regulatory risks are also on the horizon, the report said. There are concerns within the industry that regulation will stifle innovation after the US Federal Trade Commission in May sued to block Amgen Inc.'s acquisition of Horizon Therapeutics PLC.

Additionally, in the current macroeconomic environment, emerging biotech companies will find it challenging to raise capital.

"While the ongoing injection of [venture capital] and private equity funding will help to sustain biotech's innovation ecosystem, investors are likely to pursue de-risking strategies such as targeting products that can deliver clinical or commercial validation sooner," the report said.

Top deals

The top 10 transactions by value in 2022 raised a combined $3.75 billion, or about 15% of the total investments in the year. Eight of these deals were announced in the first half of the year.

In the largest deal, a group including healthcare investors Gurnet Point Capital Ltd. and Patient Square Capital LP agreed to take private commercial-stage biopharmaceutical company Radius Health Inc. for $821.4 million. The deal closed Aug. 10, 2022.

Goldman Sachs & Co. LLC was financial adviser to the investor group. Latham & Watkins LLP and Kirkland & Ellis LLP served as legal counsels. J.P. Morgan Securities LLC was financial adviser and Ropes & Gray LLP was legal adviser to Radius.

The next-largest deal was Eikon Therapeutics Inc.'s series B funding round where it raised $517.8 million. General Catalyst Group Management LLC participated as a new investor along with AME Cloud Ventures LLC and E15 VC. Existing investors Horizons Ventures Ltd. and Foresite Capital Management LLC also took part in the round that wrapped up Jan. 6, 2022.