Seattle’s biotechnology industry has never really taken root — undergoing a series of ups and downs as companies such as Immunex, Icos and Dendreon have risen and, then, faded from view.
It is a perplexing problem for a core component of the innovation economy in the Northwest, but in recent years a new energy has risen as companies Juno Therapeutics and Adaptive Biotechnologies have taken off.
But in the first half of 2016 biotech investing hit a brick wall. Hard.
Just $14.8 million was invested in four biotechnology companies in Washington state during the first half of the year — a paltry sum. By comparison, more than $225 million was invested in seven deals in the first half of 2015.
Nationally, $3.6 billion was invested in biotechnology companies in the first half of the year, down from $3.8 billion in the first half of 2015.
So, what’s up?
Although the declining numbers are troubling, Greg Vlahos, who leads the venture capital life sciences practice at PricewaterhouseCoopers, says they do not spell doom for Washington’s biotech industry.
One of the reasons venture capital investing dipped is that an increasing number of biotech companies are going public — including Seattle-based PhaseRx, which went public in May. In fact, nine of the 12 venture-backed companies that went public in the second quarter were in the biotech field, said Vlahos.
Another reason is the unpredictable nature of biotech funding, where the average deal tends to be much larger than those in tech, and where megadeals — deals over a hundred million dollars — can cause large spikes in funding data.
“Megadeals really skew the results,” Vlahos said. “I would expect the numbers to increase as the year goes on—without megadeals, it looks to me like the $13 million to $25 million range per quarter to be average.”
Leslie Alexandre, president and CEO of Life Science Washington, also pointed to megadeals as one of the ways funding data can be distorted.
“These are often such large deals that get done that it can really change the picture, so it’s better to look over a long period of time,” Alexandre said.
Robert Nelson, co-founder of ARCH Venture Partners and a biotech VC specialist, said the industry is healthy, but hard to compare to other industries around the country.
“I think it’s just lumpier,” he said, “so it’s not that Seattle biotech is in trouble, its just that we have less numbers of deals than Boston or San Francisco.”
One reason for the lower number of deals is a bottleneck in getting biotech companies off the ground: management talent.
“It’s still easier to start companies in San Francisco and Boston primarily because of the availability in management talent,” said Nelsen. “It is and has always been where the technology is and where the managers are.”
This lumpier data can also be misleading because of chance timing.
In the first weeks of the third quarter, several biotech companies announced large funding rounds, including a $14 million round for Just Biotherapeutics led by the Bill & Melinda Gates Foundation.
Alexandre said that Washington’s biotech ecosystem is stable and vibrant, particularly because of the variety in public and privately-funded firms.
“I’d always argue for having a mix of transactions,” Alexandre said, adding that 2016 has seen $2.2 billion in transactions in Washington’s life science industry, compared to a total of $3.2 billion last year.
Alexandre added that companies going public—or even those who move away from Seattle, like Amgen—add back to the biotech ecosystem.
“We’re already seeing a number of companies that have been spawned from Amgen moving out of the area,” she said. Just Therapeutics being one example.
Despite the rocky start, Seattle’s biotech industry is still set up for a solid year, these industry watchers say.