The drug industry is shattering capital-raising records in 2020, as investors funnel money into pharmaceutical and biotech companies.
Business Insider spoke with top venture capitalists about why this is happening and how they plan to take advantage.
Several VCs said they are advising biotechs that are now considering going public earlier than expected because of the booming public market.
Biotech is still a risky gambit, VCs say, but money has flowed into the space as other industries, clobbered by the pandemic, appear shakier than usual.
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The drug business is booming.
In the middle of the coronavirus pandemic, pharmaceutical and biotech companies have been sheltered from many of the outbreak's worst impacts, and have subsequently enjoyed record-breaking levels of capital.
"Biotech is smoking hot," Kevin Kinsella, founder and partner at Avalon Ventures, told Business Insider. "For the foreseeable future, being in biotech is a great place to be. People continue to need the products of this industry, and the capital to fund them is available in copious quantities because it's not going anywhere else."
Bruce Booth, a partner at Atlas Venture, in July described the first half of 2020 as a "funding tsunami" for biotech. Public and private markets are setting records, with biotechs raising $24 billion just in the months of April, May and June.
There's been more than 40 biotech IPOs this year, and nearly half are now trading at valuations above $1 billion. US-listed biotechs have raised about $9.4 billion in IPOs this year, smashing the previous yearly record of $6.5 billion in 2018, according to Dealogic data cited by The Wall Street Journal. And there's still more than four months to go in the year.
These biotechs haven't just made it out but have enjoyed an average first-day trading jump of 34%, The Journal reported in August.
Partners at several top biotech venture capital firms told Business Insider the pandemic has led to more visibility to the industry as a whole. And investor interest has skyrocketed as people look to move capital away from hard-hit sectors. As more companies look to make their public-market debut earlier, it's both an exciting time for venture investors and a risky one.
Read more: Meet the 21 biotech startups that top VCs say are poised to take off in the next 12 months
"We have not changed the fundamentals of the industry," Graziano Seghezzi, a managing partner at Sofinnova Partners, a European VC firm, said. "What has changed is everything around us, so people perceive our industry as less risky. But the inherent risk of our industry is the same."
Biotechs are going public earlier than ever in a booming IPO market
Many companies are going public while still early on in process of developing a new drug.
About one-quarter of the year's IPOs have been biotech companies that haven't started human trials, 5AM Venture managing partner Kush Parmar estimated.
Parmar said he's seen investors paying more attention to the public markets, leading to an enticing opportunity to go public.
"Because of that mismatch between private and public valuations and interest in capital, companies are deciding to go public earlier," Parmar said.