The tremendous growth in the pipeline has been made possible by the steady flow of VC money into the biopharmaceutical sector. VC investment in bio/pharma grew rapidly in the second half of the 1990s, from $800 million in 1995 to $4 billion in 2000, a fivefold increase. That rapid growth was part of a VC explosion driven by the advent of the Internet, which created opportunities for new investment in software, telecommunications, and media and entertainment.
After the dotcom bubble burst in 2001, overall VC investment dropped like a stone, from $104 billion in 2000 to $40 billion in 2001 to $22 billion in 2002. However, venture financing going to bio/pharma remained remarkably robust through the decade and the number of deals per year actually grew from about 350 in 2000 to almost 500 in 2008. By 2005, bio/pharma had become 20% of all VC investment in the US, averaging over $4.1 billion annually.BOOM TO BUST
Venture capital's largess toward the bio/pharma industry came to a screeching halt in the last quarter of 2008 and first half of 2009. VC investment in bio/pharma dropped 18% in the fourth quarter of 2008 from the third quarter, and it tumbled a further 46% in the first quarter of 2009 to just $500 million.
The funding cutbacks have forced bio/pharma companies to either shut down altogether or cutback on the number of candidates they can work on simultaneously. PharmSource analyzed 27 publicly reported restructuring events at small bio/pharma companies (public and private) in the first half of 2009 and found that those companies stopped development work on 46% of the candidates in their pipelines. At least another 10 companies went out of business altogether.
In addition to reducing the overall funds available, the decline in financing has altered the pace of decision making at the early-stage companies. It appears that companies need approval from their board of directors on every major spending decision, including work being done by contract research, development, and manufacturing organizations (CROs and CDMOs). The spending process now appears to involve collecting request for proposals from vendors, selecting a vendor, negotiating final terms, and then seeking board approval for release of funds. This has lengthened the commitment process considerably from the days when companies received tranches of funds from investors and could proceed to spend it as necessary.