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May 14, 2021
Posted by:
Katie Sunnucks

Has COVID-19 changed the investing habits of venture capitalists?

As we step into the second year of COVID-19 it begs the question; has the pandemic that has shaken the earth changed the investing habits of venture capitalists? One would assume that the pandemic has caused a flurry of activity in infectious diseases, with the race for a vaccine and search for a therapeutic for COVID-19. However, whilst there is indeed a growing opportunity in infectious diseases, the fastest growing therapeutic area is the central nervous system (CNS), meanwhile early-stage investment in oncology is declining. Here, investment and deal activity in the COVID era is compared to the pre-COVID era, with a focus on oncology, infectious diseases and CNS disorders.


Oncology, still leading the field but growth is waning

COVID-19 has not satiated the appetite of venture capitalists for biotech. As described in our previous blog post, capital flowing into European biotech has continued to increase year on year. However, whilst oncology still pulls in the highest quantum of Series A funding, it is interesting to see that there was a 7.1% decrease from 2018 to 2020 (1). This could perhaps be an indicator that oncology, which has long held a leading position in terms of VC commitment, is becoming saturated with capital and early-stage investors are keen to diversify and invest in other areas.

A huge unmet need remains in cancer, with overall ten-year survival rates for pancreatic, lung, oesophageal, brain and stomach cancers remaining below 25% (2). Although the oncology pipeline is bursting with promising treatments, it is becoming tougher for new entrants to differentiate. There is a need for novel drug targets and biomarkers that allow a personalised approach to treating cancers, as the heterogenous nature of cancer is becoming clearer. This need is increasingly being addressed by the use of advanced analytics in combination with growing data sets which are in turn improving our understanding of cancer and could drive the next generation of cancer therapeutics. There is little doubt that venture capitalists will continue to invest in oncology, however the bar may be raised by both investors and payers and therapies offering incremental improvements to life span may no longer make the cut.


Infectious diseases catching on

It is curious that although such a large unmet need remains in anti-infective therapeutics, it continues to receive less VC dollars compared to other indications. For example, despite approximately one in four deaths being caused by infectious diseases, drugs that prevent infection account for only 5% of VC investment (3,4). Additionally, the number of exits in infection have historically been low compared to other areas. For example, from 2014-2019, there were a total of 24 exits in infection, whilst 96 oncology companies exited over the same period (4).

The reduced amount of investment and exits can be attributed to a number of factors. A large proportion of infectious diseases will only require acute treatment thus making the economics less appealing compared to chronic diseases. It is unfortunately the case that the health burden of infectious diseases is more prominent in third-world countries where the pricing pressure is high. Furthermore, in developed countries most reimbursement arrangements are based on the price per pill. This model is problematic because antibiotic stewardship processes are in place to limit antibiotic use during their patent life in an effort to combat antibiotic resistance and extend their long-term value.  

For all these reasons VCs have not been investing as heavily into infectious diseases as a therapeutic area, however this may be changing. A Pitchbook search revealed that in 2021 already $152M of Series A capital has been invested into anti-infective therapeutics, exceeding both 2018 and 2020 in the first 4 months of the year. It is no coincidence that this coincides with the emergence of a global pandemic that threatens both lives and global economies. New proposals for the reimbursement of antibiotics are also being discussed and implemented. For example, the UK Government has launched a subscription model for purchasing antibiotics to help incentivise the development of new classes of antibiotics.

There is a growing opportunity in antiviral drugs, with big pharma forming a COVID R&D Alliance consortium to help accelerate the development of drugs against COVID, and governments stockpiling vaccines. With these types of initiatives the commercial opportunity is shifting. For example, Pfizer alone is projecting sales of $26 billion in 2021 for their COVID vaccine (5). Furthermore, the accelerated development of COVID-19 vaccines could have long-lasting implications on drug development, particularly for anti-infective priority programmes or other transformative therapies that address areas of high unmet medical need. Finally, the exit opportunity is looking increasingly positive, for example, 2020 saw 7 IPOs in the anti-infective space, with performance exceeding other therapeutic areas by, on average, 121% (1). For all these reasons interest in infectious diseases is increasing, and this response could well be sustained beyond the pandemic.


A renaissance in CNS interest

Big Pharma pulled away from CNS over the past decade or so for a myriad of reasons. The lack of understanding of CNS diseases has been a deterrent; over the course of the 80’s and 90’s a number of serendipitous CNS drugs were discovered without understanding of the underlying mechanisms at play. Furthermore, CNS couples a low probability of success (Figure 1), with a long development time - on average it takes 20% longer to develop a CNS drug vs non-CNS drugs (6). To add to this, the industry experienced a wave of late-stage failures in Alzheimer’s Disease, including prominent players such as Roche, Lilly, Pfizer, AstraZeneca and Novartis.

Figure 1: Probability of drug launch (%) from phases I, II and III by therapeutic area from 2010–2017 (8)

However, despite all the factors mentioned the tide seems tobe turning. In 2020, CNS saw a near 70% increase in Series A funding vs 2018 and a 66.6% increase in overall deal activity over the same period (1). Driving this growth is pain, Alzheimer’s Disease, Parkinson’s Disease and rare neurological diseases respectively (7). The increasing VC interest in CNS is likely due to a combination of factors. Whilst Pharma may have taken a step back from CNS over the last decade or so, R&D into this area has been advancing and as a result there is an improved understanding of CNS diseases. Importantly, the availability of ‘omic’ information has increased, alongside advances in high-throughput technology and statistical analysis, which has accelerated the understanding of underlying causes of CNS diseases. For example, by 2019, over 1.6 million individuals had been studied in genome-wide association studies (GWAS), which allows genetic variants to be uncovered in disease. Through these studies, over 100 variants associated with risk for developing Alzheimer’s Disease, Parkinson’s disease, frontotemporal lobar degeneration, or ALS were identified (9). Additionally, the blood brain barrier has historically been a roadblock to developing new CNS drugs, however new drug modalities and drug delivery systems are maturing allowing a wider range of approaches to treating CNS diseases. Furthermore a Pitchbook search revealed that, compared with other large therapeutic areas such as cardiovascular diseases and metabolic diseases, the amount of venture funding invested for every exit was 3-4x less for CNS ($310M, $441M and $104M respectively) (Figure 2).

Figure 2: Venture capital invested per exit by therapeutic area, January 2020-present

The findings from this blog suggest that dynamics could be shifting, with venture capitalists increasingly re-allocating early-stage capital outside of oncology. It is interesting, but not all that surprising, to observe the increase in investment into anti-infective therapeutics at the start of this year. The key change however, is the apparent renaissance in CNS diseases, which could prove to be important over the coming years.


(1)   Silicon Valley Bank (2021). Healthcare Investments and Exits

(2)   Cancer Research UK. Cancer survival for common Cancers.

(3)   World Health Organisation (2020). The top 10 causes of death.

(4)   Sabrina Willmer (2020). Venture Capitalists Shun Unprofitable Yet World-Saving Vaccines. Bloomberg

(5)   Erman and Mishra (2021). Pfizer sees robust COVID-19vaccine demand for years, $26 bln in 2021 sales. Reuters.

(6)   Tufts Center for the Study of Drug Development. Available at:

(7)   Helen Dowden and Jamie Munro (2018). Trends in neuroscience deal making. Nature.

(8)   Helen Dowden and Jamie Munro (2019). Trends in clinical success rates and therapeutic focus. Nature.

(9)   Diaz-Ortiz and Chen-Plotkin (2020). Omics in neurodegenerative disease: Hope or hype?