benchmark expectation, with Flagship Pioneering notably bagging a greater than 9-fold return for more than 15 funds

COVID-19 Therapeutics
This is the most obvious trend. Multibillion-dollar government contracts were issued under Operation Warp Speed to companies developing therapeutics or vaccines to support R&D and to guarantee purchase orders, in the event that those treatments were demonstrated to improve clinical outcomes for patients with COVID-19 in large-scale clinical trials. Early breakthroughs included small molecule antivirals like Gilead’s Veklury (remsedivir) or antibody cocktails like Regeneron’s casirivimab/imdevimab, followed by vaccines from Pfizer/BioNTech & Moderna in November/December 2020. As a result of government incentives, many of these biotech companies were able to fund COVID-19 drug development projects risk free and the results of those programs cast a golden ray of sunshine over a world that was plagued with highly contagious virus.
Outperformance of Prominent Biotech VC Firms

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Venture capitalists generally cite an average of two- to three-fold expected returns for each company they invest in, over the span of initial investment to the ‘exit’ or ‘liquidity event’. However, many of the top biotech VC firms have performed well in excess of this benchmark expectation, with Flagship Pioneering notably bagging a greater than 9-fold return for more than 15 funds, according to a recent STAT report. These outsized returns by VC firms specializing in biotech have caught the attention of generalist VC firms like New Enterprise Associates, Lightspeed Venture Partners, and others, who have increasingly allocated investment dollars to healthcare companies over the past decade.
Hot Biotech IPO Market
According to a report by Biopharma Dive, a whopping 71 biotech companies collectively raised more than $16 billion through initial public offerings (IPO) in 2020, setting a new record for the sector. The public markets, which used to be unwelcoming to biotech companies just a couple of decades ago as noted by veterans in the space, have come to embrace the ‘S’ in ‘STEM’. This shift in attitude has been attributed to a number of reasons, including the depth of the capital markets, overall rise in valuations/multiples, and unprecedented innovation in tools & therapeutic modalities (Forbes: “Evolution of the Biotech Markets from Busted to Booming”). Many biotech VCs including Foresite Capital, OrbiMed, Third Rock Ventures, Atlas Ventures, and the biotech companies that they have invested in have reaped the rewards of elevated public market interest in biotech IPOs (STAT). Furthermore, financial innovation & the rise of special purpose acquisition companies (SPAC) have provided increased flexibility to private biotech companies that are interested in going public. According to STAT, 33 health care-focused SPACs have gone public in 2020. These SPACs collectively represent $6.3 billion, which exceeds the $4 billion drug companies raised through traditional IPOs in all of 2019. SPAC underwriters include Deerfield, EcoR1, and RA Capital.
Beloved Therapeutic Areas & Development Stages
According to an analysis of venture trends published by the Biotechnology Innovation Organization (BIO) during their annual conference in 2020, companies with development pipelines focused on oncology and ‘platforms’ — therapeutic modalities that may apply to a wide range of disease areas — dominate the list of highest-valued private companies (79%) and IPOs (59%) since 2019. The first half of 2020 experienced a general year-over-year increase in biotech investment, with a preponderance of deals centered around lead products in the pre-clinical (minimum viable product) or Phase II (proof of concept) stage. Investment in oncology has increased almost 10-fold over the past nine years, presumably due to the precision of rational drug discovery backed by advancements in molecular biology, in addition to immense patient need. Interestingly, investment in so-called ‘orphan drugs’ intended to treat rare diseases are strikingly unique to the US and almost completely absent internationally, likely because of incentive structures established by the U.S. FDA and venture philanthropies. Analysts at PwC predict that biotech mergers & acquisitions by large biotech & pharmaceutical companies will increase in the second half of 2020, particularly in oncology and cell & gene therapies.
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Lead drug candidates for most biotech IPOs in 2020 are preclinical (30%), early stage clinical (59%; Phase I or II), or in oncology (48%). Source: Biopharma Dive
While the broader U.S. economy saw a 32.9% annualized year-over-year decline in GDP during Q2 2020 and the unemployment rate peaked at 14.7% in April 2020, the biotech sector appears to have maintained its financial resilience. The Nasdaq Biotechnology Index rose 26.47% in 2020, versus a 15.29% rise in the broader market S&P 500 Index. Many market prognosticators have said that the pandemic has accelerated the adoption of existing trends and biotech investment appears to be one of those trends. As the economy recovers, investment dollars are likely to re-allocate to companies in sectors that underperformed during lockdown. Nevertheless, it’s worth keeping an eye towards the biotech sector to see what new medicines ultimately emerge within the next few years as a result of the recent flood of capital.