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Why early-stage biopharma valuations have surged

Biotech investors become choosier during market downturns, paying higher prices for fewer companies.

There’s been one notable exception to the long decline in VC valuations: Investors are willing to pay up for early-stage companies developing medicines.

While valuations across most VC sectors declined since the 2021 peak, median pre-money valuations of early-stage biopharma startups hit $80 million in 2023, a 42% increase from the year prior and 33% higher than in 2021, according to PitchBook’s latest US VC Valuations Report.

“In the early stage, we’re seeing a lot more concentrated bets,” said Kazi Helal, a PitchBook senior analyst covering biotech. He explained that biotech investors navigate market downturns by giving more capital to fewer companies—and paying higher prices by extension.

Deal values for young drug discovery startups have increased every year since 2021. Meanwhile, the number of companies backed in 2023 was less than half that of two years prior, the report revealed.

Orbital Therapeutics is an example of a young biopharma startup that grabbed a mammoth round last year. Arch Venture Partners led the RNA drug developer’s $270 million Series A at a post-money valuation of $702 million, according to PitchBook data.

The recent jump in valuations is primarily driven by deals from large, established healthcare VCs such as Arch, Flagship Pioneering and Foresite Capital, Helal said.

“We are seeing the biotech old guard emphasize their dominance in the space.”

He said smaller biotech VCs may come off the sidelines if the IPO market continues to improve. Strong exits could encourage them to feel more comfortable making smaller bets because there will be more availability of late-stage capital for supporting drug trials.

When dealmaking from smaller investors eventually picks up, Helal predicts that median early-stage biopharma valuations may, ironically, decrease slightly.

Featured image by MirageC/Getty Images

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