Last week’s J.P. Morgan Healthcare Conference was generally seen as slower than usual, perhaps because of the lack of major acquisition deals that characterized the 2019 healthcare industry confab. Nevertheless, a new report on the state of investing and fundraising in the healthcare industry shows things are still chugging along.
The report, from Santa Clara, California-based Silicon Valley Bank, found that while 2019’s total $32 billion investment in biopharma, diagnostics and tools, devices and healthcare was slightly below the record set in 2018, it was still well ahead of the total in 2017.
Biopharma investment saw a slight decrease, while Series A venture capital investments overall declined 31% as investment firms focused on later-stage rounds and upcoming initial public offerings – Series B investments were highly active, leading to optimism for IPOs this year. Meanwhile, biopharma exits and returns just barely trailed those of 2018, and combined returns for 2018-2019 nearly equaled those of 2014-2017. Diagnostics and tools saw a significant drop and fewer large late-stage rounds, with greater focus on Series A investments.
For the first time since 2013, Series A oncology investments fell out of first place, receiving $835 million in 40 investment rounds. Taking the lead were platform companies, which are typically preclinical and don’t have a lead asset, but instead have attractive technology platforms for developing drugs; they received 38 investments totaling $943 million. Rare and orphan diseases also saw a rebound, with 14 Series A rounds totaling $650 million, compared with 15 rounds and $530 million in 2018. However, neurology investments lost more than half their dollar value, with 22 rounds totaling $303 million, compared with 27 rounds and $615 million in 2018. Companies developing anti-infective drugs continued their decline, from eight investments worth $102 million to six worth $91 million between 2018-2019.
For diagnostics and tool companies, the number of deals increased despite Series A investments falling for the second year in a row. Series A investments in research and development tools totaled $249 million in 2019’s 43 rounds, compared with $316 million in 37 rounds in 2018 and $519 million in 2017’s 53 rounds. Diagnostics tests saw a significant increase, with 28 Series A rounds totaling $365 million in 2019, up from 18 rounds worth $200 million in 2018 and 20 worth $152 million in 2017. Diagnostics analytics have seen a steady decline, with 21 rounds worth $370 million in 2017, 33 worth $285 million in 2018 and 19 worth $163 million in 2019.
Mergers and acquisitions among private biopharma companies have mostly held steady in terms of numbers for the past three years, with 14 last year, 15 in 2018 and 14 in 2017. But IPOs, while falling from 2018, were significantly higher than in 2017. There were 50 in 2019, compared with 55 in 2018 and 31 in 2017. Total value of exits has also remained high, at $46 billion in 2019, compared with $51 billion in 2018 and $22 billion in 2017. Oncology led by far, with 26 private company deals and 70 companies going public. By contrast, in second place were orphan and rare diseases, for which the figures were 13 and 35, respectively.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
The report forecast that overall investment in biopharma will likely see a 10-15% decrease this year as large deals led by crossover investors decline, while Series A investment will remain stable. Between 28 and 35 IPOs are expected, along with an increase in private mergers and acquisitions. Fundraising in the U.S. is expected to slow in the second half of the year, with an anticipated full-year total of $9 billion, compared with $10.7 billion in 2019.
Photo: Feodora Chiosea, Getty Images
