Hybrid venture vehicles are nothing new, but blended public and private vehicles may be gaining an edge.
Investors tracking the performance upturns in healthcare stocks are no longer content to sit on their venture laurels. They’re hungry for exposure to public markets.
While it’s too early to select the winners and losers of this post-COVID-19 cycle, it’s late enough to pick up a pattern: LPs have backed a number of $1 billion-plus biotech funds. And, with that much capital at their disposal, those larger managers almost must turn to stock trading—or at least hang onto late-stage venture stakes through their IPOs—to deploy ready dry powder.
This means the big players have a key leg up on their smaller counterparts: the dry powder to trade public names.
To test the premise, PitchBook spoke with Stephanie Sirota, RTW Ventures’ chief business officer, who plays a key role in both business development and fundraising.
RTW oversees $6.5 billion between a public and private book of biotech businesses. The firm has cemented itself as an active late-stage player, fueling deals across healthcare technologies worldwide.
In a recent deal emblematic of RTW’s approach to high-growth sectors, the investment manager joined a consortium of venture players, including Bain Capital, to inject about $400 million to support drug development at the Chinese weight loss-focused company Hercules CM NewCo.
Sirota said her outlook has never been brighter, but that’s only when you couple private and public names.
Pandemic-fueled cash flowing into biopharma startups reached a then-record $38.3 billion in 2020, according to PitchBook data, before eclipsing that with a $54.5 billion haul in 2021. Biopharma is a subset of biotech.
PitchBook analysts said an increase in investor interest so far in 2024 was “largely driven by the large but few funds raised in 2023.”
This interview has been edited for length and clarity.
PitchBook: There’s quite a few large biotech managers. And there’s no shortage of smaller managers. But there’s not a whole lot in the middle. Have you seen that? Any idea why?
Sirota: Great question … If you don’t have size, and if you can’t span the public and private pieces of the market that are so clearly connected, when capital dries up, your only source of capital to buy into the company is M&A from a specialist investor.
Being able to do that allows us to help, even outside equities. We’ve done finance, and we’ve figured out ways of even improving a company’s bonds and getting studies across the finish line.
AI may be on the cusp of revolutionizing drug discovery. The tap for acceleration capital has been turned back on. What’s next?
There’s this newer crop [of managers] incoming that have a billion or two billion they’re putting to work. It’s the next generation of funds.
Here’s the trick: We, too, are investing a lot in ourselves, building our own web and figuring out what to do with data and how to use AI to augment the work our analysts are doing.
Think of [AI’s future biotech due diligence role] as a junior analyst. We’re still in the throes of building all of that, so we haven’t utilized it to say, ‘Oh, it’s giving us low-hanging fruit, and we should build a company around this target,’ or something—but we’re working on that.
From a fundraising or investment perspective what’s your outlook right now for biotech startups?
It’s great! There are two things: Over the last few years, it’s been a tough environment, but investors re-upped commitments with the firms they believe have staying power. And, so, you haven’t really seen a downturn overall.
We’ve been very fortunate. That is also correlating to our LP messaging, which is that we’re [coming out of] this almost three-year market, which we still haven’t emerged from yet.
But we see it. We see that the beginning of this recovery has started. And our view is that we are in one of the most attractive, opportunistic and asymmetric domestic environments that we have ever lived through.
Is RTW’s backing of Hercules CM NewCo, the Chinese company focused on weight loss drugs, indicative of a focus on obesity initiatives?
Yes. We are committing considerable time and resources on obesity and metabolic diseases, because we view the opportunity as one of the most important value creators for the sector over the next decade.
Patients living with obesity, diabetes, inflammation, fatty liver and cardiovascular disease, among other adjacent conditions, will be dramatically transformed. Equally important, the amount of value created will also be transformational.
Some of that value will accrue to shareholders, some will be earmarked for R&D, and there will be plenty of cash left over for more M&A creating a virtuous well-funded cycle for the sector over the next 10 years.
Featured image by Andrew Brookes/Getty Images
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