Pivotal Life Sciences reloads with $389M, hunting for deals in a downturn

Dive Brief:

• Venture capital group Pivotal Life Sciences has raised its second fund, securing $389 million to invest in young drugmakers, the firm announced Monday.
• Pivotal, which has offices in San Francisco and Cambridge, Massachusetts, previously raised $300 million for its inaugural fund. It manages a portfolio that includes drugmakers such as Karuna Therapeutics and FogPharma, as well as diagnostics specialist Grail.
• The firm’s investors are keeping a close eye on startups that launched during the biotechnology sector’s peak a few years ago but now need fresh funds to move their programs forward, said Peter Bisgaard, Pivotal’s managing director.

Dive Insight:

Pivotal aims to invest in companies at various stages of their journey, from nascent startups needing seed funding to the more mature biotechs already on the public markets. But it’s looking to deploy its latest funds in biotechs focused on specific products, not the types of unproven technology platforms that have become less popular among certain investors during the sector’s downturn.

Whereas platform companies had an easier time raising funds during the market’s peak, the pendulum has swung towards less risky investments amid the ensuing pullback. More proven commodities have a shorter path to the milestones that can boost their value and potentially entice large pharmaceutical companies to snatch them up. Large drugmakers are always looking to biotechs to plug holes in their pipeline, but are facing even more pressure than usual in the coming years, with many facing a “patent cliff” for their most lucrative medicines.  

“They’ll always need products for revenue replacement and growing businesses,” said Rob Hopfner, Pivotal’s managing general partner, in an interview.

Pivotal has already been the beneficiary of some of that interest. Last year, for instance, Eli Lilly picked up one of its portfolio companies, gene therapy maker Akouos, in a deal that could eventually be worth as much as $610 million.

Some of the companies from Pivotal’s first fund in 2017 have also gone public. One of them is vaccine developer Vaxcyte, which is one of the top performing initial public offerings in the last six years, according to BioPharma Dive data.   

Despite a downturn that has made building and funding young drug companies as challenging as it’s ever been, several venture firms have either recently formed or reloaded to invest in new science. New firms such as Bioluminescence Ventures and Yosemite debuted this year, while established investors such as OrbiMed, Forbion and SR One have raised new funds to support drug startups.

“This is the worst downswing in the market in biotech we’ve ever seen,” Hopfner said, as many of the companies in a widely followed stock index are worth less than their cash reserves. “But it’s a great time to be investing with fresh capital.”