Early 2019 Continues 2018 Record Pace
January 2019 saw the highest January venture capital (VC) investment in
healthcare and life sciences startups on record since Pitchbook
began tracking funding in 2008. And this month is just as impressive. While
outsized Series A rounds (several followed by quick IPOs) grabbed the 2018
headlines, more traditional Series B to F rounds are getting closed in
- Oncology -genetic disease drug platform BridgeBio (Palo Alto) topped January
fundraising, with close to $300 million from a consortium of existing
private equity fund and other crossover investors.
- Kalamazoo (Michigan) raised a $77 million Series D while still in
clinical trials for its hypertension-reducing catheter device.
- Digital therapeutics startup Pear Therapeutics (Boston) closed its Series
C for $64 million.
- Health Catalyst (Salt Lake City), whose hospital software links data for
tracking insurance, patient satisfaction and electronic health records,
just raised $100 million in debt and Series F equity financing from OrbiMed
and incumbent investors which include a top private equity fund, university
medical center, and national health managed care consortium.
- KenSci (Seattle), an AI-enabled healthcare predictions startup, raised
$22 million from an existing group of venture capital funds.
- CathWorks, which developed non-invasive technology for imaging of
arteries during angiography, recently announced the completion of a $30
million Series C financing round led by life sciences fund Deerfield
- Despite talk about whether the strong 2018 IPO market can continue,
Avedro, which sells ophthalmic medical systems used for treating corneal
disorders, announced terms for its $75 million IPO.
Even though it is a non-correlated investment class, VC investment always
surges in a hot IPO market. And notwithstanding the government shutdown and
stock market swings, many commentators expect the IPO pipeline will remain
open for now. But more bullish observers warn that such a frothy market
needs a break at some point.Regardless, stock market and macro-economic
volatility are not likely to stop the healthcare VC train, and may only
cause a shift of VC dollars to smaller, earlier rounds from specialist
healthcare VCs. After all, healthcare is a defensive investment sector that
can withstand whatever Wall Street swings (and any narrowing IPO window),
Washington, D.C., gridlock and even an economic downturn may serve up. And
savvy VC investors seize VC opportunities in down public markets
characterized by less competition and more reasonable valuations.
Sources: Healthcare Venture Capital Funding is off to a Record Start in
(“Forbes”); Experts Predict Strong 2019 For IPOs Amid Gov't Uncertainty,
Technology Convergence = Rx + Dx
“Biotech” used to mean life sciences, more lab biology than digital or
efficiency-enhancing technology, and more about the preclinical, clinical
and regulatory gauntlet of proving drugs and devices. It was the darling
of, and perhaps the reason for, the development of the VC investment model
and ecosystem, well before the internet, software and healthcare IT. Today,
in the innovation economy, technologies conceived not only in medical
schools, but in computer science and engineering schools, have expanded
biotech beyond the pure science of drug and device development to
technology-enabled solutions that make the discovery, testing, approval and
delivery of, and diagnosis of indications for, drugs, medical devices and
therapies more cost-effective and patient-effective. Data, AI, robotics,
smart machines, IoT and mobility are making healthcare IT and software
yesterday’s news. And this convergence of technology and healthcare has
attracted non-traditional investors to VC, including traditional technology
players and opportunistic “crossover” investors such as hedge funds, family
offices, foundations, sovereign wealth funds and public-minded and new
direct-investing pension funds.
Source: “Health IoT will drive digital health market to $535B by 2025,”
(focusing on the increased use of smartphones, laptops, and tablets by
2018 Stats and Trends
- U.S. VC investment reached $130.9 billion in 2018 (surpassing the 2000
- U.S. healthcare VC (including biopharma, healthcare IT and AI-enabled
solutions for diagnostics, delivery and testing, or “Dx”) exceeded a record
$13 billion (biopharma, $6.4 billion; Dx $4.4 billion; and medical device,
- Biopharma oncology and drug development platform deals led the way, but
Dx (tools and testing), devices and surgical robotics continued strong
- The trend of fewer but larger (mega or $50+ million) deals continued,
fueled by healthy IPO and M&A exit activity, although seed and
early-stage (pre-Series B) deals were strong — Moderna Therapeutics
(biotech/analytics) raised $300 million in VC, then closed the largest IPO
on record at $604 million.
- Total biopharma IPO value set its own record (70 percent of total exit
value) and M&A exits remained steady. Oncology also dominated exits,
although platform company exits also increased.
- U.S. healthcare VC fundraising responded, reaching a record $9.8 billion.
- Biopharma Series A deals almost doubled to $4.1 billion, driven by the
inflated size of seed and Series A rounds (some of which were followed by
- Non-healthcare/traditional technology fund investors dominated Dx
investment and fueled the mega-round environment, causing a
likely-temporary decline in corporate VC investment.
- Investor migration was twofold: (1) tech funds continued moving into
healthcare where their domain experience allows them to understand the
technology, and (2) crossover investors like hedge funds, sovereign wealth
funds, pension plans and public-minded institutional investors moved into
late-stage VC to grab soon-to-be-public healthcare stakes.
Sources: Silicon Valley Bank, Trends in Healthcare Investments and Exits
2019 (“Silicon Valley Bank Report”);
Takeaways and 2019 Outlook
- Biotech companies took a “dual path” exit approach, either raising larger
dollars and going public, or raising smaller dollars and pursuing an early
- Commentators generally expect 2018 trends to continue (fundraising and
investment), albeit with some normalizing and acknowledging the potential
adverse impacts of continued stock market volatility or an economic
- Technology buyers may increasingly acquire early-stage Dx tools and
analytics companies, and biopharma M&A may increase if the IPO window
starts to close.
- Any cooling of the IPO market may shift VC dollars to earlier-stage
opportunities and cause crossover investors to pull back, but the demand
for Rx and Dx solutions and available capital should nonetheless support VC
investment and healthcare M&A.
Life Science VCs Close Outsized Series A Rounds and Early Therapeutics
- Third Rock Ventures invested $58.5 million in Casma Therapeutics’ Series
- Atlas Venture launched Generation Bio with a $25 million Series A
investment, and a $100 million Series B quickly followed.
- OrbiMed funded 89Bio’s Series A with $60 million.
- Allogene Therapeutics (engineered cell therapies) and Grail (data
analytics-driven oncology blood test) each raised $300 million rounds, and
Allogene went public.
Sources: MedCity News, Breaking Media, Inc.
medcitynews.com/2018/11/life-sciences-vc-investment-trends-similar-to-tech-but-there-are-differences (“MedCity News”); Forbes, infra; PitchBook and National
Venture Capital Association,
Big Pharma Doubling Down on Oncology
- Pfizer Inc. (along with Bristol-Myers Squibb Co., Eli Lilly & Co.,
and other big pharmas) is making a big push into cancer-treating drugs. In
fact, Pfizer is expected, for the first time in 2019, to make cancer
treatment the biggest portion of its drug revenue, through internal
development and acquisitions.
- Pfizer also announced it was increasing its VC arm pool by $600 million.
Sources: Wall Street Journal, Pfizer Delves Deeper Into Cancer Drugs,
Monday, January 28, 2019, B1; Barron’s, Pricing Pressure a Hard Pill for
Pharma to Swallow, February 4, 2019, p. 15.
Foreign Investment in U.S. Healthcare: China
- Chinese and other Asian investors such as Taiho Ventures (the VC arm of
drug-maker Taiho Pharmaceutical) significantly increased their activity in
the U.S. life sciences sector in 2018.
- Observers question whether the Committee on Foreign Investment in the
United States (CFIUS) will put the chill on Chinese biotech investment in
Sources: Silicon Valley Bank Report, infra; MedCity News, infra; Forbes, infra.
Healthcare and Middle America — Think Pittsburgh, Nashville and
University Research Hospital Towns
- The migration of healthcare entrepreneurs and investors from Boston,
California and New York continues its slow trend. Quality of life for
talent, proximity to university research and incubators, and a desire for
differentiation from competitive VC fundraising hubs appear to be the main
- Pennsylvania, with Pittsburgh being a formidable biotech (and hospital
research) ecosystem, had 15 biopharma deals in 2019 bringing in $721
million, and seven Dx deals totaling $36 million.
- Minnesota (home to several large health systems) had 12 medical device
deals totaling $217 million.
- Healthcare startups continue to look to a true healthcare hub —
Nashville, Tennessee, which is anchored by some 18 publicly traded
- We have featured university towns like Austin, Texas, and
Charlottesville, Virginia, in prior editions of “Venture Capital
Coast-to-Coast,” highlighting the growth of incubators, local angel
investors and tech talent in these mini-VC ecosystems.
Sources: Silicon Valley Bank Report, infra; Venture Capital
Journal, The Big Advantage Middle America Offers Innovators: Time, Buyouts
Healthcare Industry Challenges = VC Investment Opportunities
VC investing in general, and life sciences investing in particular, have
historically been characterized by high development risk, high R&D
spend and a long gauntlet of preclinical, clinical, and regulatory and
commercial milestones. Today, the politics and pain of skyrocketing
healthcare (and drug) costs and the uncertainty around reimbursements and
FDA approval of (and new risks inherent in) rapidly evolving technologies
providing interoperability and data analytics demand disruptive technology
solutions and public-private cooperation and collaboration. These unique
challenges within healthcare are driving its convergence with digital
technologies, including information technologies, data analytics,
artificial intelligence, robotics and even telemedicine.
is driving healthcare’s dominance in VC, where investors look for outsized
returns from tech-enabled products and services serving significant needs
in large markets.
What Healthcare Entrepreneurs Might (Should) Learn from Investors
“Every Company is a Tech Company.” The Carlyle Group’s CEO,
Kewsong Lee, recently said, “Every deal is a tech deal.” As with
energy, food, manufacturing, transportation and other core investment
sectors, technology is not only changing the way healthcare solutions
are assessed, developed and delivered, it is also expanding the
universe of VC investors in the healthcare sector. (See www.pehub.com/buyouts,
Carlyle’s Kewsong Lee: “Every deal is a tech deal,” January 22, 2019.)
Technology “generalist” funds and strategic technology-company
investors are moving downstream to healthcare VC deals. So
life-science-specialists funds and big pharma VC arms have more competition.
- Healthcare VC’s Resilience. The demand for healthcare innovation and solutions and even
healthcare’s financial and regulatory headwinds will continue
healthcare’s dominance in VC fundraising and investment. While
alternative and crossover investors focus on larger Series A-to-IPO
scenarios and unicorns, the ecosystem for smaller and earlier-stage VC
investments by life sciences funds and impact investors (angels, family
offices, incubators, foundations and corporate VCs) appears strong, and
may even benefit from stock market declines and lower valuations.
Seasoned technology and life science investors now understand the
benefit of earlier, smaller investments providing more control over the
uncertainties of economic and regulatory hurdles and cycles. They
understand that innovation and game-changing technologies (and data and
AI), and proactive communication with industry partners, insurers and
regulators, will more effectively mitigate risks and enhance potential
- A Roadmap for Healthcare Startups and VCs. The challenges of healthcare investing, particularly in the higher-risk
and potentially higher-return sectors of biopharma and digital
technology solutions, reveal a roadmap for creating the best companies
for attracting VC investment. Greg Dombal, COO of Halloran Consulting
Group, recently made the following compelling observations:
- Early investments in biotech companies will allow investors to derisk the
investment process by releasing money in small tranches.
- Leveraging preclinical and clinical trial data will enhance investor due
diligence and visibility into the risks and potential returns associated
with particular health products, solutions and technologies.
- Mapping out a regulatory pathway and “increasing touchpoints” with
biotech consultants and regulatory bodies such as the FDA will minimize
investment losses and increase success in early-stage investments.
Sources: R&D Magazine,
www.rdmag.com/article/2018/05/three-ways-venture-capital-firms-maximize-their-biotech-investments; Navigating the Life Sciences Fund Landscape,
Even when the currently hot market for healthcare VC investment cools,
innovative startups that can identify the right early-stage VC investors,
leverage technology and data, and develop a flexible roadmap for product
development and company exit will continue to get funded. Choosing the
right investors for the right stage of company development and the desired
exit will optimize returns for founders and investors alike. Healthcare
startups must also align themselves with dependable technology solution
providers (e.g., proven, legally compliant and data-secured platforms), VC
funding sources providing not just money but strategic direction and
industry connections, and legal, accounting and technology advisers that
understand the new regulatory and legal challenges presented by innovation.