Leah Rosenbaum Forbes Former Staff
I write about the business of healthcare.
The Covid-19 pandemic ravaged many parts of the economy — but in one sector, the pandemic led to an influx of cash. Venture capital funding for infectious disease companies reached an all-time high in 2020 at $2.9 billion according to an analysis conducted by Pitchbook for Forbes. There were also a record number of new deals: 155, an 80% increase compared to a decade ago.
Companies that focus on infectious disease, whether developing vaccines, antibiotics, or other therapeutics, have been historically underfunded.. While oncology startups like Grail and Tempus raked in billions and direct-to-consumer brands like Ro and Hims became unicorns, many infectious disease companies in years past struggled to get even a fraction of the same backing. Glenn Rockman, founder and managing partner at Adjuvant Capital, says that part of the reason infectious disease companies have faced a chronic cash shortage is simple math. Drugs for cancer and heart disease can have much higher price tags than a new antibiotic that might sit on the shelf as a last-resort treatment. “The profit opportunity compared to how risky it is to develop a new drug,” Rockman says, “that math is just much harder” for infectious disease companies. Rockman launched Adjuvant Capital last February with a $300 million venture fund for companies that address historically overlooked healthcare problems, including infectious disease.
Despite past obstacles, Covid-19 completely changed how investors view infectious disease companies. “What you’re seeing is the emergence of a new market,” says Andrew Nerlinger, a venture capital investor and cofounder of PandemicTech, a venture philanthropy that supports companies fighting infectious disease threats. He credits much of the new investment to familiarity — “you invest in what you understand,” he says, and now everyone understands first hand the devastating impact of a global pandemic.
Lisa McDonald, PandemicTech’s other cofounder, says that there is not only new interest in infectious disease from investors, but also from company founders. “We saw an uptick in new entrants to the space,” she says, noting that many existing companies in the broader tech sector pivoted to focus on infectious disease during the pandemic.
“There’s a societal desire to forget and get on with daily life,” McDonald says, citing the huge amount of interest that surrounded the Zika and Ebola outbreaks before eventually sputtering out.
Not all infectious disease companies have been underfunded. Moderna, which created one of the world’s first Covid-19 vaccines, had some of the biggest funding deals in the healthcare sector in 2015, 2016 and 2018. Before going public in 2018 the company was valued at $7 billion. Its success during the pandemic also minted three new billionaires, including its CEO Stéphane Bancel.
While the pandemic-era venture funding has been a boon to companies, it’s unclear how long it will last. The data from Pitchbook shows that funding in infectious disease companies has mostly increased over the past 20 years, but it doesn’t always correlate with world events. While there was a small increase in funding after the 2003 SARS outbreak, there was a decrease in infectious disease funding after the 2009 H1N1 swine flu pandemic. “There’s a societal desire to forget and get on with daily life,” McDonald says, citing the huge amount of interest that surrounded the Zika and Ebola outbreaks before eventually sputtering out.
Nerlinger says he does think that there will be a contraction in the market after the pandemic is over, “but I think the baseline investment in the space is going to be significantly higher after Covid.”
Rockman agrees; he believes that something has changed in the venture capital industry thanks to the pandemic. There was “an awakening of the importance in investing in some of the less sexy parts of the healthcare ecosystem,” he says. Companies that manufacture mundane objects like small glass vials have made billions of dollars thanks to Covid-19 vaccines. Hopefully, he says, the pandemic has turned the funding tide for the whole infrastructure of companies fighting infectious disease.
