Life Sciences VC Funding Drops 28% in 2022

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The U.S. life sciences industry made a killing the past few years, but now it’s stabilizing in step with other segments amid overall market volatility.

Despite a strong start last year, venture capital funding for life sciences totaled $35.8 billion in 2022, down 28 percent from the previous year, according to Cushman & Wakefield. Initial public offering activity also fell 90 percent from $14.5 billion in 2021 to $1.4 billion in 2022. Additionally, biotech companies have laid off thousands of employees the past few months and some have shut down.

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“Funding decreased across all deal types in 2022,” the C&W report read. “Volatility, which greatly impacted the general equities market, also brought the life sciences initial public offering pipeline to a standstill.”

Two-thirds of all VC investment in life sciences last year landed in the sector’s top three hubs. However, six of the eight top markets in the country saw a decline in deal volume in 2022.

The San Francisco Bay Area accounted for $12.6 billion, or 35 percent, of the total venture capital funding in the U.S. last year, followed by Boston at $8.5 billion and San Diego with $2.5 billion. Los Angeles also saw a notable spike in later-stage funding, up 92 percent from 2021.

Capital flows focused largely on the Golden State, with seven of the top ten deals of the year earmarked for California-based companies. The top two efforts in 2022 were $3.3 billion raised by Redwood City, Calif.-based Altos Labs and $1.3 billion raised by San Diego-based Resilience.

Looking forward, C&W estimates that VC capital will become more conservative, but also noted that dry powder for life sciences increased to $290.1 billion at the end of third quarter last year, up 24 percent from 2021.

“While we don’t know how much dry powder will focus on the life sciences sector, we can estimate the potential allocation based on funding over the last 10 years, an average of 16 percent of total market VC capital,” the report said. “This indicates that a potential $46.4 billion — of the $290.1 billion in total dry powder — could be earmarked for life sciences investment.”

Gregory Cornfield can be reached at gcornfield@commercialobserver.com