The United States is considered to be the leading player in the life sciences industry due to its massive investment and advanced biotechnology; supporting this are some of the best life sciences research institutions in the world.
Presently, the bay area of Massachusetts provides a significant contribution as a biotech hub in the region. One into which, according to Robert Coughlin, CEO of the Massachusetts Biotechnology Council, venture capital companies poured more than USD 4.8 billion in 2018, compared with only USD 900 million in 2012.
Moreover, the region is home to more than 430 biotech companies, which generated more than USD 11.9 billion in wages in 2018. Furthermore, five of the top hospitals in the United States that receive the largest National Institutes of Health (NIH) funding is located in the region.
In this article, we will not focus on the State of Massachusetts in general but elaborate on some key points about VC investment in one of the most important cities of the region, the city of Cambridge.
Cambridge: the biotech hub in the northeastern region of the US
Cambridge, located a few miles from Boston (another biotech hub), is home to the prestigious Harvard University and is one of the most remarkable US biotech hubs in the northeastern region. The city bears a high concentration of hospitals, leading universities and life sciences related private firms, allowing for a fantastic 'triangle' of collaboration and partnership in the area, comprising a fusion of 'academia-hospitals-private sector,' particularly around the well-known Kendall Square.
Kendall Square’s cluster of labs was designated 'the most innovative square mile on the planet' by a Boston Consulting Group report in 2009. It is home to around 25 biotech and life sciences companies and research institutions, including some emerging biotech startups like Moderna Therapeutics, Relay Therapeutics, and WuXi NextCODE. Some of these startup companies raised a war chest of funding before going public on the New York Stock Exchange, many with IPOs in 2018; furthermore, in the same year, 78% of all Massachusetts biotech companies that traded publicly were from Cambridge – and 62 of its public companies had a combined market value of about USD 170 billion.
Life sciences companies found their way to significant PE/VC investment through collaboration with top universities and research institutes in the region. They received special treatment from the National Institutes of Health, which injected hundreds of millions of dollars into the industry.
However, a significant reduction in VC investment occurred in 2016 as a result of a volatile stock market and fears of a tech bubble that reduced venture capital confidence in the market. According to Russell 3000 equity market index, 2016 was the 14th most volatile of the past twenty years. But, as the market recovered in 2017 and investors became more confident, biotech companies experienced an astonishing increase of 359% in VC funding.
In 2018, more than USD 2.3 billion was poured into the sector, mainly into companies operating in the biologics and therapeutics areas. That's a 140% increase from USD 996 million in the previous year. However, these firms experienced a slight decrease in fundraising in 2019, around USD 2.1 billion. That reduction of funding was mostly due to various firms that went public in 2018, which are not included in the 2019 list of fundraising.
Academic institutions have been one of the crucial factors contributing to the transformation of the City of Cambridge into a life sciences cluster. For instance, Harvard University, the National Institutes of Health and the Massachusetts Institute of Technology (MIT) were considered the best institutions for life sciences in 2018 by Nature Research Journal. Hence, startups in those areas can easily cooperate with these institutions, mainly when they hunt 'talented individuals.'
Investors are more skeptical about disbursing their capital during the seed stage
Since 2014, biotech companies have been struggling to raise further funding in the seed stage. Investors have been skeptical before taking any new move, waiting for startups to make their first steps in the industry and observe how they behave towards the market, as the risk of failure is high.
After the 'probation period,' or, as we can call it, the seed stage, investors are more willing to inject a significant amount of money. Thus, companies have raised most of their funding in Series A & B, which we consider the growth stage. On average, Series A funding rounds accounted for 37.35% of total funding from 2014 to 2019, while Series B accounted for 33.8%.
In 2019, biotech and life science companies snagged around USD 909 million in Series A and USD 698 million in Series B while seed funding accounted for roughly 1.4% (around USD 29 million).
Considered one of the world's largest global wealth managers, UBS, under the management of its fund firm UBS Oncology Impact Fund, has injected a considerable amount of capital into biotech firms in Cambridge, like cancer drug developer companies Oncorus, with USD 79.5 million injected. Other active investors in the area include US-based VC companies Atlas Venture, ARCH Venture Partners, Alumni Ventures Group, UK-based VC firm Eight Roads Venture and China-based VC firm Qiming Venture Partners (启明创投).
Therapeutics companies lead the top 20
The top 20 companies in Cambridge’s life science scene raised a combined amount of over USD 5.4 billion from 2014 to 2019, with a focus on top fields like biologicals, therapeutics, and cancer diagnostics.
Firms with a focus on immunotherapy stem cell therapy and drug discovery have received more than half of all venture capital investment. Drug developer firm Moderna Therapeutics attracted the largest amount of capital by raising more than USD 1.8 billion in funding, while its rival Relay Therapeutics ranks as the second-largest fundraising with USD 520 million, followed by genomic information company WuXi NextCODE which has received USD 455 million in funding.
Biopharmaceutical and oncology drug companies also attracted a considerable amount of investment. Cancer Drug developer Oncorus raised more than USD 140 million, which was carried out mostly through its Series B funding round worth USD 79.5 million last year. Gene-editing and diagnostics companies like Editas Medicine and WuXi NextCODE have nagged a combined of over USD 660 million in total funding.
The discoveries and innovation brought by these biotech companies have fundamentally bolstered Massachusetts' status, making it a biotech hub of global importance. However, the state is still facing many challenges, particularly the expensive rent, which makes the costs of doing business more costly, and the necessity of building up infrastructure to sustain biotech and attract talented professionals.
However, It is expected that life science companies will experience exponential growth in the future with the further integration of AI and machine learning.