With venture investments pouring into biopharma, steady M&A deals and an increasingly widening IPO market, J.P. Morgan sees the industry returning to growth—finally.
Venture dollars rose in the second quarter compared to the one prior, according to a new second-quarter licensing and venture report from the bank. Biopharmas raised $7.6 billion in private financings across 107 investments, with the dollar value for both the second and first quarters beating the previous ones. The first quarter also saw 107 total rounds.
“Venture investments returned with high-dollar rounds in Q2 to pour funds into biopharma and platform research, regardless of the company's clinical status. M&A activity maintained its healthy pace as the IPO market continued to open incrementally wider,” the report reads.
The bank also suspects deal value will pick up in the second half as interest rates have plateaued and a rate cut is expected in September.
J.P. Morgan is forecasting venture dollar volume to reach $28.2 billion by the end of the year, which would break a two-year downtrend. But that value will be far shy of the massive total from 2021 when $43.8 billion made its way to biopharmas across 750 venture rounds.
Fifty biopharmas raised $100 million or more during this year's second quarter. J.P. Morgan specifically name-dropped Xaira Therapeutics’ whopping $1 billion in committed capital that was announced in April along with Formation Bio’s $372 million series D from June. AltruBio also raised $225 million through a series B in May.
Early-stage funding was also healthy, according to J.P. Morgan. Seed and Series A fundraising totaled $5.1 billion across 105 rounds in the first half; most of these were announced in the second quarter with huge initial values. Xaira was among those, as was Diagonal Therapeutics with a $128 million raise.
Fundraising primarily focused on companies with candidates in the clinic, which is a change from last year, according to J.P. Morgan. Phase 1 companies raised a median round of $76 million in the second quarter, which is double the figure from the same period a year earlier. For phase 3 companies, the median was $100 million, which is more than double the full-year 2023 value for late-stage companies.
Biologics and small molecules continue to attract the most popular investments and licensing deals.
Pharmas stuck to licensing partnerships, which continue to see a larger share of the deal value across the industry, for overall deal activity. These deals also saw a continued trend toward smaller upfront payments and steep milestones that may or may not be paid out later, J.P. Morgan noted.
Upfront payments represented just 6% of the total deal value for licensing transactions, which topped $76.3 billion in total value for the first half of the year. This is compared to a peak of 13% that was recorded for 2019.
“A larger share of deal value has been pushed to milestones as in-licensing partners mitigate deal economic risk,” the report explains.
The largest upfront licensing payment of the quarter was from Sanofi and Novavax, which agreed to a $500 million deal to help with the COVID shot Nuvaxovid. Novartis also promised some massive initial payouts, including $180 million for PeptiDream to develop a peptide-drug conjugate program and $150 million to develop a phase 3-ready protein degrader for prostate cancer with Arvinas.
Major pharmas have gravitated their licensing efforts to late-stage assets in an effort to fill up their pipelines.
“A larger share of deal value has been pushed to milestones as in-licensing partners mitigate deal economic risk,” J.P. Morgan wrote.
Particularly of interest were antibody-based therapies and antibody-drug conjugates, while cell and gene therapy partnerships declined in aggregate value.
There were 26 acquisitions in the second quarter totaling $17.9 billion to buy out an increasing share of small-cap biopharmas. J.P. Morgan says the industry is on track for about 100 total deals in 2024. Major acquisitions include Vertex Pharmaceuticals’ $4.9 billion buyout of Alpine Immune Sciences and Merck’s $1.3 billion for Eyebiotech.
As for IPOs, J.P. Morgan clocked $1.9 billion for market entrants across 10 market debuts that were completed in the first half, including three in the second quarter. Nine out of these had clinical programs in the works, providing a strong signal for later-stage companies to make the jump to the Nasdaq. The largest IPOs were CG Oncology’s $437 million entry and Kyverna Therapeutics’ $367 million. J.P. Morgan also flagged Alumis, despite the immunology biotech's last-minute downsizing of the IPO, which ultimately raised $210 million.