Funding

Industry Funding Trends are Mixed

Although there has been a notable pullback in life sciences venture capital investment and initial public stock offerings so far in 2023, high levels of company R&D expenditures and public funding from the National Institutes of Health will persist. Life sciences companies also have roughly $200 billion in cash and equivalents on their combined balance sheets allocated for business development and mergers & acquisitions.

Life sciences company R&D expenditures have grown by an estimated 40% over the past five years. The nearly $154 billion in company R&D expenditures last year far exceeded the $21.7 billion in life sciences venture capital investment.

Figure 7: Life Sciences Research & Development Expenditures

Source: S&P Capital IQ, CBRE Research, February 2023.

Venture capital plays a pivotal role in the creation and expansion of life sciences companies. Despite a 34% year-over-year decline in annual VC funding last year to $21.7 billion, Q4 2022 recorded the first material quarterly increase in venture capital funding since early 2021 at 20%.

While evidence of abundant available capital among investors provides an element of optimism for more favorable funding in 2023, recent turmoil in the banking system may restrict greater amounts of funding for emerging life sciences company expansions.

The bulk of life sciences venture capital is allocated to companies in the top three premier life sciences markets of Boston/Cambridge, the San Francisco Bay Area and San Diego. Some commercial real estate investors have indicated that they will limit their focus to these three markets in the near-term due to current economic volatility. Nevertheless, funding for these three markets fell by 33.5% year-over-year in 2022, compared with a 31% decline for the rest of the top 10 markets tracked by CBRE Research.

Figure 8: U.S. Life Sciences Venture Capital Funding

Source: CB Insights, CBRE Research, 2022.

Figure 9 shows how the growth or decline of life sciences venture capital investments closely mirrors the rise or fall of industry employment. Based on the year-over-year change in annual venture capital investment, a slowdown in life sciences hiring should occur this year. However, Q4 2022 saw the first material quarter-over-quarter increase in venture capital funding since early 2021, suggesting a stabilization in hiring trends rather than a decline.

Figure 9: Year-over-Year Changes in Life Sciences Venture Capital Investment & Employment Growth

Source: CB Insights, U.S. Bureau of Labor Statistics, CBRE Research, January 2023.
Note: Changes in annual venture capital funding shown.