Good day. Biotechnology venture funding shot to new heights in 2021 as investors bet on startups applying tools such as genomics, synthetic biology and artificial intelligence to drug discovery.

U.S. biotechs amassed $29.66 billion in 2021, up from $20.05 billion the year before, according to Silicon Valley Bank. The investment reflects hope that these and other emerging technologies will increase companies’ odds of developing successful medicines.

Conventionally, drugmakers have taken a one-size-fits-all approach. These days, startups increasingly aim to pinpoint specific groups of patients most likely to respond to a new medicine, based on the presence of a genetic or other biomarker. This could increase the chance of a medication earning regulatory approval and insurance coverage.

“If I had to pick the No. 1 thing we see changing, it’s the use of biomarkers,” said Jonathan MacQuitty, life sciences sector head for Lightspeed Venture Partners.

Biotech startups also are banking on artificial intelligence to uncover new insights. For example, synthetic-biology company Absci Corp., which went public in 2021, has used AI when identifying the function of a protein that wasn’t previously known, Chief Executive Sean McClain said. Other biotechs, such as Shape Therapeutics Inc., are applying AI to fields including gene therapy.

Biotech companies face headwinds this year, including heated competition for talent and supply-chain concerns. Companies that weather these and other challenges can distinguish themselves from weaker competitors this year.

“Our sense is 2022 is going to be a strong year, selectively for good companies,” said Kleanthis Xanthopoulos, CEO of cell-therapy startup Shoreline Biosciences Inc.

And now on to the news...

Medical-device exits. Venture capitalists cashed in on investments in medical-device startups in 2021, selling and taking a record number of them public. 

• Globally, medical-device startups—such as developers of robotic-surgery systems or instruments to treat heart disease—staged 24 IPOs last year, the highest number on record, according to Silicon Valley Bank. Acquirers purchased 22 venture-backed device startups in 2021, also a new high, according to SVB.
   
• Investors and acquirers are seeking medical devices that could improve medical procedures and enable more patients to be treated or monitored remotely as the Covid-19 pandemic pressures hospitals.
   
• Strong performance from several medical-device IPOs has encouraged more crossover investors to finance late-stage private companies and prepare them for a public offering, said SVB managing director Jonathan Norris.

Biopharmaceutical firm Pardes Biosciences Inc. plans to spend a large chunk of the funds it raised through a public offering late last month on a pill it is developing to treat Covid-19, including manufacturing and hiring more clinical staff, WSJ reports. The clinical-stage company on Dec. 27 listed on Nasdaq after merging with FS Development Corp. II, a special-purpose acquisition company sponsored by venture-capital firm Foresite Capital. Pardes said it raised $274 million, including $199 million from the SPAC’s trust account and $75 million in the form of a private investment in public equity from Foresite, investment manager RA Capital Management and biotech giant Gilead Sciences Inc., among others. Pardes is one of several drugmakers—alongside Pfizer Inc., Enanta Pharmaceuticals Inc. and Japanese drugmaker Shionogi & Co. Ltd.—that are developing oral antiviral pills against Covid-19. The U.S. Food and Drug Administration last month cleared Pfizer’s Covid-19 pill for use.

Funds

OSF HealthCare, an Illinois and Michigan hospital system, said its venture arm launched a $100 million third fund to continue focusing on improving patient care and outcomes, and greater operational efficiency. OSF Ventures raised $75 million for its preceding fund in 2019. The firm makes direct and fund-of-fund investments.

People

Norwest Venture Partners said Tiba Aynechi joined the investment team as a general partner to lead its biotech practice. She was most recently a senior partner at Novo Holdings. Last month, Norwest closed its 16th fund at $3 billion.

Nine Square Therapeutics, a developer of novel therapies for movement disorders including Parkinson’s disease and amyotrophic lateral sclerosis, named Robert Paul as the company’s chief executive. He was previously chief medical officer of Alector. Apple Tree Partners invested $50 million in South San Francisco, Calif.-based Nine Square Therapeutics in 2020.

Acelyrin Inc., a biotechnology startup whose drug candidate Izokibep seeks to treat uveitis and axial spondyloarthritis, appointed Melanie Gloria to the post of chief operating officer. She was most recently senior vice president of development operations at Horizon Therapeutics. Acelyrin recently closed a $250 million Series B round from investors including Westlake Village BioPartners, Cowen Healthcare Investments, Samsara BioCapital and venBio Partners.

Exits

mPulse Mobile, a provider of conversational AI and digital engagement technology for the healthcare industry, acquired HealthCrowd, a communications platform-as-a-service provider focused primarily on the Medicaid market. Alongside the deal, growth equity firm PSG invested in mPulse Mobile, becoming a majority shareholder in the company. Existing mPulse Mobile backers Optum Ventures, OCA Ventures, HLM Venture Partners, Echo Health Ventures, SJF Ventures and Bonfire Ventures also participated in the growth investment. HealthCrowd had previously raised funding from investors including TVC Capital, Startup Capital Ventures and Healthy Ventures.

Venture-backed companies Headspace Inc. and Ginger merged last year and the combined company, known as Headspace Health, has acquired mental health and wellness company Sayana for an undisclosed amount. Founded in 2018, Sayana was backed by Y Combinator and Gagarin Capital Partners.

Aledade Inc., which helps coordinate care between primary-care physicians, hospitals and insurers, purchased care planning provider Iris Healthcare for an undisclosed sum. Last January, Bethesda, Md.-based Aledade said it raised a $100 million Series D round led by Meritech Capital. Iris Healthcare was backed by Hatteras Venture Partners, Activate Venture Partners, LiveOak Venture Partners and Better Ventures. As part of the transaction, Iris Healthcare will become part of Aledade Care Solutions, Aledade’s new health services unit.

Freenome Holdings Inc., a South San Francisco, Calif.-based startup developing a blood test to screen for colorectal cancer, landed a $290 million investment from Roche, bringing the total raised by the company to more than $1.1 billion. Last month, Freenome said it raised a $300 million Series D round from investors including Perceptive Advisors, RA Capital Management, Andreessen Horowitz, Bain Capital Life Sciences and GV. 

Transcarent, a Palo Alto, Calif.-based provider of healthcare services for employees of self-insured employers, raised $200 million in Series C funding. Kinnevik and Human Capital led the round, which included additional support from General Catalyst, 7wireVentures, Alta Partners, Merck Global Health Innovation Fund, Jove Equity Partners, Threshold Ventures, GreatPoint Ventures, Ally Bridge Group, Northwell Health, Intermountain Healthcare and Rush University Medical Center.

Maze Therapeutics Inc., a South San Francisco, Calif.-based startup translating genetic insights into new precision medicines, scored a $190 million investment. Matrix Capital Management led the round, which included participation from General Catalyst, Andreessen Horowitz, Woodline Partners, Casdin Capital, City Hill Ventures, Foresite Capital, Driehaus Capital Management, Moore Strategic Ventures, Terra Magnum Capital Partners, NS Investments and others. Matrix Capital Management’s Andy Tran joined Maze’s board.

Shanghai ZhenGe Biotech Co., a Shanghai-based drug development startup, completed a $100 million Series C round. Goldman Sachs Asset Management and Sofina led the investment, which included contributions from Novo Holdings, Qiming Venture Capital, IDG Capital, LYFE Capital, Junxin Capital and Cowin Capital.

DexCare Inc., a Seattle-based digital care operating system provider, gathered a $50 million Series B round. Led by Transformation Capital, the investment included support from Kaiser Permanente, Providence Ventures, Mass General Brigham, Define Ventures, Frist Cressey Ventures and SpringRock Ventures.

Chapter, a New York-based Medicare advisor startup, secured $42 million in Series B funding. Addition led the round, which saw participation from Narya Capital, Susa Ventures, Maverick Ventures, XYZ Venture Capital and Health2047 Capital Partners.

DeepScribe, a San Francisco-based medical scribe technology startup, picked up a $30 million investment. Nina Achadjian of Index Ventures led the round, which included participation from Bee Partners, Stage 2 Capital, 1984 Ventures and others.

PostEra, a Boston-based company specializing in machine learning for preclinical drug discovery, raised $24 million in Series A funding. Lead investor Clermont Group was joined by Breyer Capital, Lifeforce Capital, I2BF Global Ventures, Metaplanet, HOF Capital, Ace & Company and Pioneer Fund.

Chronus Health Inc., a Mountain View, Calif.-based developer of portable blood analyzer technology, snagged $22 million in Series A financing. Tarsadia Investments led the round, which included contributions from Monta Vista Capital, SOSV and Savantus Ventures.

Scitara Corp., a Marlborough, Mass.-based digital lab startup, added $15 million in Series B funding. Northpond Ventures led the round, with additional participation from Flybridge Capital and others.

Diana Health, a New York-based women’s health provider, launched with $11 million in Series A financing. Lead investors LRVHealth and .406 Ventures were joined by AlleyCorp in the round. Payal Divakaran of .406 Ventures and Ellen Herlacher of LRVHealth will join the company’s board.

PreciseDx, a New York provider of cancer risk stratification services, fetched $10.8 million in Series A funding. Merck Global Health Innovation Fund led the round, which saw participation from IBM Ventures, Mount Sinai Health System and others.

HeyRenee, a Los Angeles-based personal healthcare assistant, raised a $4.4 million Seed II round led by Quiet Capital, with participation from City Light Capital, Fika Ventures, Global Founders Capital, Mucker Capital, SaaS Ventures and Tau Ventures.

• Pig-heart transplant jolts doctors confronting lack of organ donors
   
• Sleep-apnea machine recall costs grow, hitting Philips shares
   
• Will record Omicron cases cause a surge in the severely ill? Scientists look for signs
   
• Red Cross, facing blood shortage, offers donors chance to win Super Bowl 2022 tickets

• Covid-19 vaccine effectiveness in New York State. (New England Journal of Medicine)
   
• Researchers diagnose rare diseases with DNA sequencing. (STAT News)
   
• Fighting leukemia by targeting a little-known protein. (Fierce Biotech)
   
• Five questions facing biotech M&A in 2022. (BioPharma Dive)

This newsletter was compiled by Matthew Strozier, Zachary Cole and Brian Gormley. 

WSJ Pro Venture Capital is a premium service of The Wall Street Journal. We cover venture capital and the global startup ecosystem. Share your tips, comments and questions: vcnews@wsj.com

The Team: Matthew Strozier, Yuliya Chernova, Brian Gormley and Marc Vartabedian.

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