Business

It was a good quarter for biotech venture capital, but what’s ahead?

Biotech venture capitalists and their portfolio companies had a historic first quarter — but that doesn’t mean the industry is out of the woods just yet.

A record $5.5 billion went from venture capital firms into biotech companies last quarter, Bruce Booth, partner at Atlas Venture in Cambridge, noted Wednesday in a post on his blog, citing data from PitchBook. But those numbers likely don’t reflect the full impact of the ongoing coronavirus pandemic. Funding rounds and deals take time to negotiate and close. It’s generally thought that the impacts of a major event — like a pandemic — will lag a few months behind.

“You’re not going to see the impact of this particular pandemic on the overall numbers until you start to see deals close maybe toward the end of April and on,” said Jon Norris, a managing director at Silicon Valley Bank who focuses on life sciences investments.

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Booth said he is optimistic that $5.5 billion number might not drop more than 35% over the next few quarters — which would mean a billion-dollar drop, but also means that several billions of dollars would still be funneled to startups during that stretch.

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“I’m confident we’ll make it through the pandemic impact with a robust ecosystem of VC-backed biotech companies,” Booth wrote.

Johannes Fruehauf, the co-founder of Cambridge incubator LabCentral and a general partner at BioInnovation Capital, is also optimistic — but said he wouldn’t sugarcoat how difficult raising money could be for brand-new companies.

“In terms of new financing, I think it’s going to be very hard,” he said. “I don’t think anybody can honestly have a full view of what this means.”

“The reality is that the VC world hates uncertainty,” he added. “And this crisis throws a big fat wrench into the system.”

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The outbreak only started to disrupt everyday life in American biotech clusters during the last two weeks of the first quarter. San Francisco, for example, was one of the earliest American regions to strongly encourage or require residents to stay at home — and that order only took effect on March 16. A similar advisory was announced in Massachusetts on March 24.

Many recently announced deals were likely done by that point.

“If you do a deal in a month, it would be pretty fast,” said Bob More, a managing partner at Alta Partners. “With lawyers, closing documents, it usually takes 30 to 90 days.”

Some of that business involves activities that just can’t be done over a Zoom call. PitchBook’s analysts noted that some of venture capital’s underlying investors — which are usually pension funds, sovereign wealth funds, and charities — may be required to do some pre-investment research into a given fund in person.

Venture capital investors might also be loath to invest without some face-to-face meetings.

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“Maybe we’ll get sufficiently comfortable that we will be able to invest in people we’ve only met remotely. But we’re not there yet,” Fruehauf said.

But while the pandemic could complicate the process of deal-making, it doesn’t necessarily mean that lean times are ahead for every startup. Unlike tech and tech-adjacent companies, early-stage biotech companies aren’t counting on revenue from selling drugs right now. That means they’re less exposed to some of the immediate impacts of the economic crisis than a luggage company, a scooter startup, or a travel-based business.

And some biotech companies have investors that are particularly flush with cash right now. As Booth notes, investors have committed a significant amount of fresh money to biotech VC firms, including Flagship Pioneering, venBio, and ARCH Venture Partners. “We are going to put that money to work,” More said.

“I’ve been involved in three deals that have closed in the last quarter,” More added. “Money is flowing. This is going to have a huge effect — but we just don’t know all the implications yet.”