The first quarter of 2019 may not have broken records, but it puts the year on track for a solid performance after the historic successes of the previous 12 months. While the first three months have not demonstrated quite as notable a trajectory in terms of deal numbers, there remains cause for optimism that this year will be another great one.
The first quarter serves as a solid footing – each month brought 49 deals for a total of 147 investments. Although this was fewer than the 174 deals in the same period a year ago, they were worth a total of nearly $2.58bn – slightly more than the $2.53bn recorded in the first quarter of 2018.
It is too early to determine whether a flurry of transactions across 2018 and smaller deal sizes will be replaced by fewer deals and bigger cheques, but the fact that the deal count has dropped only a little while more capital has flowed into spinouts is a heartening sign that the ecosystem remains in good shape.
Some of the deals were big. Passage Bio, a US-based company developing treatments for neurological diseases based on research at University of Pennsylvania, obtained an $115.5m in a series A round that included Lilly Asia Ventures, an investment vehicle for pharmaceutical firm Eli Lilly, in February. The corporate’s involvement was also a reassuring sign that all the talk about the difficulty of attracting the industry’s early interest is not always true.
Impressive figures were also raised outside the traditional centres of tech transfer – continental Europe is all too often seen as lagging behind the UK and the US. One such transaction was the $91.5m investment by pharmaceutical firm Sanofi in Germany-based immuno-oncology therapy developer Biontech in connection with the extension of a research and development collaboration agreement. Biontech is a spinout from Johannes Gutenberg University Mainz that has been developing immunotherapies since 2008, long before the concept became popular in the mainstream press.
Both these examples are healthcare-focused and this sector has always been the most important area for university commercialisation, followed by IT. However, the consumer sector experienced a surge in February and accounted for $124m of deals, while transport accounted for $147m in January.
There is another reason to be upbeat – 40 funds either were launched with a dedicated focus on spinouts or secured university capital over the first quarter. Noteworthy funds include the $273m Osage University Partners III, which reached its oversubscribed final close in March and hopes to invest in 40 to 50 university-linked businesses, and Lab1636, a $100m investment partnership between Harvard University and Deerfield Management also unveiled in March that Vivian Berlin, managing director of strategic partnerships in Harvard’s office of technology development, said “may prove transformative for Harvard research”.
Here, too, Europe made a splash with funds such as Fraunhofer-Gesellschaft, an association of 72 Fraunhofer applied research institutes in Germany, announcing a $68m early-stage tech transfer vehicle with the help of EU institutions including the European Investment Fund in February.
And Finland-based venture capital fund NordicNinja VC attracted carmaker Honda and electronics companies Panasonic and Omron for its $113m inaugural vehicle, also in February, to focus on opportunities arising from the ecosystem around KTH Royal Institute of Technology and thise of universities in Odense and Espoo.
Of course, money going in also means money having to come back out, and figures here too are fairly steady, with a total of 11 exits, slightly below the 14 in the same period last year. There is perhaps a bigger question over whether the same number of exits can be achieved in 2019.
May 2018 will most likely continue to tower over everything else for a long time – blockbuster deals such as the $8.7bn acquisition of Avexis, a US-based neurological disease treatment developer commercialising Ohio State University research, by pharmaceutical firm Novartis, do not come around often.
There were some fantastic wins, such as the $800m acquisition of Nightstar Therapeutics, set up to commercialise therapies for rare inherited retinal conditions based on research by Robert MacLaren, professor at the Nuffield Laboratory of Ophthalmology at University of Oxford, by biotech developer Biogen, in March. Nightstar had taken home the GUV award for Exit of the Year 2018 for its $75m initial public offering in 2017, but little did anyone know that this was just a small step in the spinout’s success story.
The fact that more capital has actually flowed into the ecosystem is arguably the most important takeaway from this quarterly analysis. It proves that investor appetite shows no sign of slowing down even as some economists continue to predict a recession.
