The Few and the Proud: The Biotech Startup Class of 2012

Xconomy National — 

[Updated: 3:35 pm PT, 12/3/12] Quick: Can you name three exciting biotech companies that got started, in your city, in 2012?

I can’t, as a citizen of Seattle. Chances are, no matter where you live in the U.S., and no matter how plugged-in you are into the industry, you can’t either.

This wasn’t supposed to be a trick question. When I crafted this story idea last week, I thought it might be hard for people outside of top-tier hubs like Boston and San Francisco to fill in the blanks. But when I circulated the question last week to 12 people who are extremely well-connected in five major U.S. biotech startup clusters, I got very little back in the way of substantive answers. The incomplete responses say everything you need to know about the barren landscape for biotech startups in 2012.

I’ve been mostly focused this year on the slow-motion train wreck occurring in life science venture capital. But that’s only part of the startup finance story, since this also has a huge effect on entrepreneurs. Good luck trying to find people who raised real money to get companies off the ground this year. There were only 15 first-time biotech financings nationally in the third quarter of 2012, which continues a year-long decline. The numbers seem to keep getting worse every time the National Venture Capital Association and PricewaterhouseCoopers send out their quarterly venture capital reports.

When I cast a broader net last week on Twitter, asking readers there to nominate exciting startups from 2012, I got quite a few answers. But most of those companies haven’t raised any significant investment money yet.

So, here’s what I found about the biotech startup class of 2012. After three days of hounding human sources, digging into industry databases, and doing various online searches, I came up with a list of more than 65 biotech startups. But many of these companies look more like startup company candidates rather than true growing enterprises with a chance of becoming newsmakers. So for the purpose of this exercise, I defined an “exciting” biotech startup as one that has a big idea, credible founders, and pulled in at least $5 million in a first-time financing in 2012.

Even in a world full of super-lean “virtual” companies, it still takes tens of millions of dollars to accomplish anything big in life sciences, so $5 million is really a pretty modest start. While there are plenty of ideas and smart people to go around, I counted only 30 companies in North America and the United Kingdom who raised that modest amount of dough to get started this year.

Any way you choose to look at it, there is so little money now being put into biotech startups that any rational person has to wonder where the new drugs, medical devices, and diagnostics are going to come from in the 2020s and beyond.

The year isn’t over yet, of course, and I don’t really know how this number compares to other years, but I do know from experience that I wrote about more startups than that for Xconomy even during the dark financial years of 2008 and 2009. This trend worries me. Biotech needs to keep creating a steady stream of new companies, because a certain number of players disappear from the scene every year, via acquisition or failure. New startup investments matter, because if they pan out, they could have big implications for patients and the future of medicine.

Now, you might also ask, where was the action? That’s equally disturbing. The proud biotech hub of San Diego, for example, can claim exactly zero members of the “big idea/big talent/big money” club, unless you stretch to count Thesan Pharmaceuticals just across the Orange County border in San Clemente, CA. Seattle, unless you bend the rules to include a deal from December 2011, also produced a big fat zero. Boston can count eight—Warp Drive Bio, Visterra, Annovation Biopharma, RaNA Therapeutics, Synchroneuron, Neurovance, Alcresta and Rs3 Bioscience. San Francisco, the world’s other top-tier biotech hub, can claim five. They are Global Blood Therapeutics, Myokardia, Cerephex, GeneWeave Biosciences, and Atreca. [Updated to include Atreca]

Carl Weissman, CEO of Accelerator

“This is probably the saddest period in biotech in Seattle history,” says Carl Weissman, the CEO of Accelerator, who’s raising a new fund for biotech startups in Seattle and New York.

Before showing the list of the few and proud biotech startups of 2012, some caveats are in order. Databases on startups are notoriously incomplete, since many companies in their earliest days try to remain stealthy to avoid the scrutiny of the media and well-heeled competitors. There’s always the murky question of when a company really is “started.” Is it when key intellectual property gets created, or licensed to a company? Is it when the founding team starts working together full-time? Is it when the first Series A check arrives? The true answers can vary from company to company.

Since this list is incomplete, I’d like to ask you for your help in fleshing it out a bit more. If you know of a company that isn’t on this list, but meets the criteria above, send me a note at [email protected] and I’ll verify to see if it should be added. For the sake of the industry, and for the patients that are counting on new medical innovations, I hope there’s more startup action to report on in 2013.


Warp Drive Bio

Annovation Biopharma

RaNA Therapeutics


4s3 Bioscience



Alcresta [Added: 9:30 am PT, 11/27/12]


San Francisco Bay Area

Global Blood Therapeutics


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8 responses to “The Few and the Proud: The Biotech Startup Class of 2012”

  1. Dave Melin says:

    What about Tesaro in Boston?

  2. Dan EramianDan Eramian says:

    Luke. you might want to consider the fact (or at least my view) that the concept and the drive toward “innovation” has seemingly disappeared from the national discussion on to how get the economy going—hence the decline in start-ups. Nor do you hear any voices on how to development products (drugs) more efficiently. The biotech business model hasn’t changed much so you still operate like drilling for oil—all very risky and with fewer risk-takers.

  3. lwilson says:

    Luke: I am interested in how you screened for “credible founders”; are there many companies raising $5MM in Series A without “credible founders”? Or are you eliminating companies just because the founders haven’t made money for VCs before (which seems to be the main criteria that VCs are using these days to evaluate teams).

  4. Dan—I think people have been thinking much harder the past couple years about new biotech business models, i.e. ways to reduce the time/expense/risk equation of drug development. No one can point to a new winning formula just yet. I personally think we’ll need a technological breakthrough, and a big change in regulatory policy, to really solve the drug development productivity problem.

    Lwilson—I tried to be very charitable in my screening of the founders of these startups. Basically if you have an advanced science degree and didn’t appear to be a convicted felon, I was willing to give these enterprises the benefit of the doubt, assuming they are sincerely trying to build real companies. I’m sure the list would be much smaller if I limited it to people with proven track records.

    Dave—Tesaro went public in 2012, but it was founded in 2010, so that’s why it didn’t get counted in this analysis.

  5. Alan Watt says:

    Luke: thank you for this post. I have first hand experience of the difficulty of raising venture (or any other) money for a biotech startup in the current environment. My sense is that the purpose of venture appears to have shifted from providing financial capital to early stage, high-potential, high-risk growth startup companies to an increasingly short-term model where a near-term liquidity event (i.e. a trade sale to Big Pharma in the current non-IPO climate) is probable. The profile of investments has moved towards a more risk-averse stance, meaning that the money chases predominantly clinical assets and anything prior to Phase I is labelled “too early” for investment. This may well be being compounded by the release of clinical assets from a down-scaled Big Pharma sector, such that investments are being directed towards projects with a human proof-of-concept study in the near-term horizon.

    My (small) team have shown enormous courage and dedication, working for no salary for many months in an attempt to launch something they passionately believe in, but this is not a sustainable situation for any of us and I suspect many potential biotech entrepreneurs are in the same position. Whether we are credible as scientists and whether our business model is fundable is for others to judge, but it is frustrating not even to have an opportunity to pitch simply because we are “too early”. I can only hope, for the sake of global healthcare, that we see a shift back towards supporting the pioneering spirit of startups in the not-too-distant future.

  6. Chris Behrenbruch says:

    Luke – this was a nice article to write and as one of the listed companies, it’s great to get the acknowledgement of how incredibly tough it is out there. The bar has become really high the past few years – it took us nearly 4 years to raise money for ImaginAb.

    But I have three comments to make…

    Firstly, first-time financings are tough full stop, not just because of the nature of the industry at the moment, but the fact that many concepts need to go through a pain process to reach maturation. Ours probably took longer than most – a combination of a complex product and maybe … just maybe … a bit of time was required for the CEO (i.e. yours truly) to hit his stride and get his act together.

    Don’t we all look back at the lessons we learned… and the dumb things we did!?

    Secondly, there is no doubt that early stage revenue makes a difference. I know that this was a characteristic of several of the companies on the list, including us. I actually think that it’s probably reasonable for investors to go after companies that are starting to make money, even if the net burn is in the red. That’s because there are a boatload of ways to monetize your idea, even early on, and without giving away the family jewels. I think we are going to see this more and more…

    Lastly, to those reading the article and marvelling at the (kind of crappy) statistics, don’t give up hope. You have to have a good idea, you have to grow into the “shoes” of the story, and you may even need to show some early revenue. But most of all you’re going to have to stick with it long enough – so keep battling.

    I can put my hand on my heart and say that the biggest lesson I learned the past 5 years was that no matter how brilliant your idea is, IP portfolio, lab that you came out of (except maybe the Langer lab), whatever … it takes THREE years to get traction with biopharma partners. That means that if early revenue is now a requirement for getting a VC round in, then it’s going to take you three years to get there.

    That needs to be in the plan – both for the company and for your personal life.

    Good luck everyone … and again, Luke, thanks for writing the article.

    Chris Behrenbruch


    ImaginAb, Inc.

  7. Fred says:

    I think one thing many of you missed is the impact of the government coming into the lifesciences space. With Obamacare the profitability will be taken out of this industry so the investment capital will go elsewhere for a better return. The killing off of innovation is one of the hallmarks of falling gross margins.

  8. The Biotech Startup Class of 2012: How many received SBIR/STTR awards?