Venture Capitalists Turn to Public Biotechs

"Some venture firms are pumping money into publicly traded biotechnology companies, as falling share prices prompt these investors to expand their search for bargains to the public markets.

Private investments in public equities, or PIPEs, are financing deals publicly traded companies strike with a group of investors. Biotech companies in the U.S. raised 56 PIPEs for more than $4.56 billion in proceeds in 2023, according to investment bank William Blair. Both totals are the highest the firm has recorded since it began tracking these financings in 2015.

Investors in PIPEs typically focus mostly or entirely on public companies. But these deals attract venture capitalists seeking to support newly public portfolio companies, or make initial investments in public biotechs that they see as good values.

The amount venture capitalists devote to public companies is small compared with their investment in private ones. VCs funneled nearly $23 billion into U.S. and European biotech startups in 2023, according to HSBC Innovation Banking, which serves technology and life-sciences companies and investors.

However, these investors have more opportunities to join public financing deals because many portfolio companies that went public in recent years are raising capital again, sometimes at prices well below their initial public offering. Venture firms are joining PIPEs tied to reverse mergers, in which a startup goes public by merging with a public company.

In some cases, venture firms seek to make initial investments through PIPEs. Lightspeed Venture Partners in September became a new investor in cancer drugmaker Olema Pharmaceuticals, which does business as Olema Oncology, by participating in a $130 million PIPE.

"I have never seen this difficult a financing market in my career," said Lawrence Blatt, chief executive of drugmaker Aligos Therapeutics, which raised a PIPE in October from investors including Roche Venture Fund. "It isn't going to be every biotech company that can do a PIPE."

Companies negotiate PIPEs privately with investors and only announce them after reaching a deal. PIPE investors can't trade their shares until material nonpublic information they have seen is revealed publicly, said Thomas Rose, a partner with law firm Troutman Pepper Hamilton Sanders.

People once associated PIPEs with distressed companies, but that view has dissipated as strong businesses have raised these financings, said Rahul Chaudhary, senior managing director and head of healthcare equity capital markets for investment bank Leerink Partners. "The stigma of doing a PIPE that was there in the market 10 years ago isn't there today," he added.

The downshift in the public markets is leading venture firms to back public biotechs they see as better deals than comparable private companies.

Last year, valuations reset more slowly for later-stage private companies than for public biotechs, said Lightspeed Partner Jonathan MacQuitty, because startups used tactics such as insider rounds to sustain their prices.

That led Lightspeed to consider public investments, he said, adding the firm seeks to participate in PIPEs beyond Olema's. "For about a year, we've hovered over a number of public companies where they have a reasonable amount of cash, good clinical data, and they want to extend the runway," MacQuitty said.

Olema extended its cash runway into 2027 through the PIPE and an up to $50 million credit facility from Silicon Valley Bank. The company, which went public in 2020, says it now has capital to fund late-stage, or Phase 3, clinical trials of a drug for certain metastatic breast cancer patients.

Drugmaker Pharvaris went public at $20 in early February 2021, shortly before the biotech industry's pandemic-era bubble popped. In June 2023, Pharvaris, which is advancing a treatment for the rare inherited disorder hereditary angioedema, raised a $70 million PIPE." [1]

What are we doing in Lithuania? Playing with expensive tanks and drones to kill people? Whom are we going to kill? All around us are either friendly countries or nuclear countries. So our new killing toys are not needed in reality. Should we invest in biotech or robotics instead?

1. Venture Capitalists Turn to Public Biotechs. Gormley, Brian.  Wall Street Journal, Eastern edition; New York, N.Y.. 02 Feb 2024: B.5.