Are some diseases associated with a higher risk of venture capital losses?

Are some diseases associated with a higher risk of venture capital losses? 

Before summer we posted a study correlating venture capital losses in drug development with the magnitude of funding of clinical trials. We have used two approaches to find losses: 1) Companies that Pitchbook registers with a “distressed deal”, 2) Companies with M&A transaction multiples of lower than 1x; focusing on European drug development companies founded after year 2000 and with more than EUR 2M raised.  
 
Below we have studied the correlation between losses and choice of disease area.  

In the left panel we have ranked the indications according to number of losses. 

Some biotech investors, Sunstone included, are reluctant to invest in infectious diseases. The therapy payment models are not attractive and the established industry seems disinclined to buy infectious disease focused companies. The data below confirms that the field is subject to many losses and that some investors have learned the relevance of commercial viability the hard way!  
 
Oncology is the second disease category with a high loss rate, but data from our previous M&A analysis suggests that oncology ranks high in M&A frequency. In the right panel we have normalized losses relative to successes (EUR >50M M&A). Infectious diseases remain risky, while the many losses in oncology seem balanced by a higher likelihood of success – at least over the past 20 years. Cardiovascular diseases also have a high Loss to Success ratio, but numbers are low (11 losses and 1 success) and we hesitate to conclude anything.  
 
We have also analysed the average raise for the three disease areas with the highest number of losses (>20): oncology – EUR 21M per company; infectious diseases – EUR 19M per company; CNS – EUR 16M per company. Surprisingly it appears less costly to fail in CNS. Maybe CNS focused clinical trials are more definitive – whereas oncology trials are more explorative and facilitate a second try – and eventually a more costly failure?  
 
In general, we find that the diseases that seem more exposed to losses match Sunstone’s experiences – and according to the data above, an experience we apparently share with some of our industry colleagues 🙂
 
Let us know what you think!
#sunstonelifescience #lifescience #venturecapital

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Sunstone is delighted to announce that experienced biotech executive and CEO of Galecto Hans T. Schambye will be joining our team as new Venture Partner as of 1st February 2025.

With a background as an MD and PhD Hans brings to Sunstone over 25 years of experience within corporate strategy, drug discovery and development and financing of biotech companies.

Prior to co-founding Galecto, Hans served as the CEO of ReceptIcon from 2006 to 2009 and as the CEO of Gastrotech Pharma A/S from 2004 to 2006. Before joining Gastrotech, he was Director of Biology and Pharmacology and Head of Portfolio Management at Maxygen, a US biotech company. Hans has co-founded several biotech companies, including ProFound Pharma A/S, a Danish biotech company acquired by Maxygen in 2000. Hans has also served on a number of biotech company boards, including Step Pharma and IO Biotech (both in our portfolio), as well as Forward Pharma, which secured a +billion USD deal with Biogen. Prior to this he had a successful research career at Stanford University and Copenhagen University within the field of receptor biology. Hans holds an MD from Odense University and a PhD in Molecular Pharmacology from Copenhagen University.

Besides his positions as Galecto CEO and member of BioInnovation Institute’s Board, Hans is the Chairman of the Board of Danish Bio, working tirelessly to promote innovation, research and development in life science in Denmark.

As Venture Partner, Hans will participate in qualifying our deal flow and providing supportive feedback to entrepreneurs that reach out to Sunstone. He will complement Sunstone’s other three part-time Venture Partners to help ensure Sunstone maintains access to a broader set of competencies and experiences.

We look forward to welcoming Hans and we are confident that his extensive experience will greatly benefit Sunstone.

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