Healthcare venture investment in the U.S. and Europe reached a new high in 2018, according to Silicon Valley Bank, the bank of the world’s most innovative companies and their investors. Investment totals in 2018 grew more than 50 percent over 2017, with the activity due in large part to record Series A investments in U.S. biopharma companies.

SVB’s annual Trends in Healthcare Investments and Exits Report analyses and predicts trends for venture capital investing, fundraising and exits that shape the biopharma, medical device and diagnostics/tools sectors.

‘The report highlights the opportune market conditions for venture-backed healthcare companies, from fundraising to going public,’ said report author Jon Norris, Managing Director of SVB’s Life Science and Healthcare Practice. ‘This big appetite for healthcare venture investments, especially among generalist and crossover investors, is the result of remarkable science and technology advancements leading to more effective treatments.’

Norris also pointed out that, ‘In biopharma, 2018 came down to leveraging exit opportunities. Rather than companies looking to get acquired, they raised larger mezzanine rounds, sometimes in Series A, and then went public.’

Notable Results of 2018:

With nearly twice the number of deals compared to a year earlier, top 15 crossover investors restocked biopharma IPO pipelines by funding 60 private companies.
2018 saw a record 18 $1B-plus venture-backed biopharma IPOs and M&A deals.
Since 2015, oncology companies have generated exit returns of more than 3x capital invested.
For the first time, venture-backed device M&A total upfront payments, reaching $3.5B, eclipsed all other sectors. Device IPOs doubled over 2017, marking a five-year high for median IPO valuation and dollars raised.
Diagnostics/tools far exceeded 2017 activity, with 10 acquisitions and two successful IPOs in 2018.

SVB’s Outlook for 2019:

‘We expect venture investment to be healthy in 2019 given the pipeline of current funds in the market, excellent biopharma and device exit numbers and exciting IPOs in the diagnostics/tools arena,’ Norris said. ‘However, with increased market uncertainty, we do anticipate 2019 totals to more closely match 2017.’

SVB anticipates total healthcare venture fundraising to continue at a healthy pace, reaching about $8B, slightly below the 2018 total. Established funds are likely to be joined by new spin-out funds anchored by established investors. Additionally, tech firms may raise life science-only sister funds.
Top 15 crossover investment in venture-backed companies could soften by 25 percent or more, leading biopharma investments to decrease and more closely match 2017 totals.
Strong biopharma IPO activity looks to continue in 2019 as crossovers replenished their private company pipeline in 2018. But market uncertainty could drag the number of IPOs down and moderately reduce pre-money valuations and dollars raised. As a result, SVB expects an increase in private biopharma M&A.
Dx/Tools Series A deals will likely climb in 2019, while overall investment dollars could lag following multiple larger 2017 and 2018 financings. Tech acquirers will likely scoop up a few Dx tests and Dx tools and analytics companies, which could spur an uptick in M&A deal value.

The Life Science and Healthcare Practice of Silicon Valley Bank delivers specialised solutions and market expertise in the areas of biopharma, medical device, diagnostics and tools, digital health and healthcare services, with a focus on helping companies of all sizes grow.

Read the full Trends in Healthcare Investments and Exits 2019 report here: