In a recently-published annual report of the healthcare investment landscape, Silicon Valley Bank (SVB) found that 2020 was a record year for healthcare fundraising, investment and exits. Healthcare investment was more than 47% higher than in 2019 with a new high of $51bn being invested in the sector in 2020. Venture capital (VC) fundraising was particularly strong across the sector with $17bn available in new venture funds focused on healthcare.
SVB’s report noted that 2019 to 2020 represented the biggest year-on-year growth in healthcare fundraising since 2011. This was largely because of larger fund sizes and early-stage investors moving into later-stage opportunistic funds. In addition, SVB saw a huge increase in the establishment of healthcare special purpose acquisition companies by VC and hedge funds to a total of $2bn.
The investment surge was particularly seen in the second and third quarters, demonstrating the resilience and strong networks of the healthcare industry amid the pandemic, according to SVB.
Investment specifically into biopharma was record-breaking for both deal volume and dollars. Biopharma companies with VC backing were particular bright spots as they leveraged technologies and expertise to develop treatments for Covid-19.
Although 2020 was an excellent year for Series A deals in general – both in terms of quantity and value – neurology stood out as the indication that saw the highest increase in Series A deals. Neurology also did well in likely to IPO (LIPO) deals; the indication saw four deals valued at more than $100m: Arvelle, AavantBio, ATAI Life Sciences and Praxis.
The report concludes on an outlook for 2021. SVB anticipates that there will be a fundraising decline in 2021 to 2019’s $10.7bn pace, but that investment will continue at a steady clip. Focusing on biopharma, SVB predicts there will be continued investment in Series A rounds, as well as robust IPOs and more private merger and acquisition activity.
SVB UK branch managing director of life science and healthcare Nooman Haque discusses the report’s findings and analyses why 2020 was such a promising year for healthcare, despite the Covid-19 pandemic. Haque goes on to share his outlook for life science deals and investment in 2021.
Allie Nawrat: Why was 2020 such a great year for the healthcare sector?
Nooman Haque: When the pandemic hit, it became apparent it was going to be a particularly difficult environment for investment; some sectors were going to be hit fairly badly. But when you look [back] through history, whenever there is a big economic shock, there are certain sectors that are pretty immune to the changes, and healthcare is one of them. The pandemic and the resultant economic shock makes people look for safe havens [and] healthcare is always a safe haven.[Also], because the economic shock was fundamentally a health shock, it put a spotlight on healthcare like never before.
You saw this [interest] in the pattern of fundraising by venture funds, which, for me, was quite surprising. The number we quoted in the report was $17bn. When they are looking to invest in a ten-year fund, they don’t make decisions on the fly [as] this is not something you can suddenly get in and then get out of quickly. A lot of it is existing funds, which have perhaps gotten bigger.
AN: Why was neurology an indication of particular interest to healthcare investors in 2020?
NH: There are always some constants in healthcare. Oncology investment is always at the top; as soon as you make one breakthrough, there is another problem. People will [also] pay for those treatments.
In a lot of other areas, the need is also there, but [investment] is more responsive to particular breakthroughs or developments either from fundamental research or a rival company having success in utilising technology. Perhaps neurology falls into that [trend]. It has never been out of favour, but interest waxes and wanes depending how much progress there has been.
AN: Were there any stand-out deals or rounds in 2020?
NH: In a year where there was so much capital, it is difficult to pick out any one. [But] Freeline Therapeutics, which is a client of ours, had a phenomenal year for fundraising. They went public shortly after raising a large private round as well.
Freeline demonstrates the strength of UK companies to access international capital and public investor sentiment. If you’re best in class or second best in class and a high-tech company, [Freeline is an example of] the kind of capital you can access internationally.
AN: Will 2021 be another big year for healthcare investment?
NH: I’ll be surprised if 2021 can top last year. I don’t necessarily think that a marker of success should be that it’s bigger than last year. In something like life sciences, in order to create a business, you often need a scientific breakthrough, which is different from technology [for instance]. Life sciences is slower to find new propositions.
On the other hand, the $17bn in fundraising that has been undertaken by LPs [limited partners] is going to be invested over the next two to three years. That compares to $10.7bn [the year] before, so there is more to invest in the same period of time going forward; the $17bn won’t now be spread over more years. The question is will it be more front-loaded this year? Or will people hold back because they did a lot last year?
Whichever way you look at it, 2021 is going to strong year for fundraising. The more interesting question is who is going to benefit? Are investors going to be backing new companies or doubling down on the big deals that they’ve done?
The pattern over the last few years has been increasingly to back their existing portfolio companies and continue to back the best-of-the-best of new company creation. I think that trend will still be there. [But] some of their portfolio companies will have raised quite a lot this year, so it gives investors a little more capacity for perhaps newer, alternative investments.
AN: What impact will the Covid-19 pandemic continue to have on the investment landscape?
NH: How long will Covid-19 be around and how long will this be a valid investment proposition? At the start of this year, it has become evident that we are going to be living with some of the impacts, both health and economy-wise, of Covid-19 for a lot of this year as well.
It is also clear that given the nature of the disease, we are going to have to incorporate some sort of Covid-19 readiness or response into the healthcare infrastructure. Otherwise we are just going to go through bouts of expansion [and] suppression. There is going to be ongoing vaccine development as the virus mutates. It is no good saying we will have annual occurrences like with flu because we know it is not like flu. There is asymptomatic spread.
Then the question becomes, who does the investment? Ultimately Covid-19 will be part of the investment landscape [in 2021], but more through public-private partnerships. A big winner [of the pandemic] has been the public-private partnership on the healthcare front. As someone who has worked in government and is currently involved with industry lobbyists trying to direct traffic of industrial policy towards life sciences, I look forward to seeing further engagement on that front to tackle some of these [other] important health challenges.[Another] big winner has been the mRNA platform technology; [Covid-19] is essentially the first time it has been used. The fact that it has worked for two different companies and has been very quick [is very positive] for pandemic readiness and vaccine development in the future.
You will begin to see those technology platforms turn their eye to other disease areas and they will have success without a doubt.
Verdict deals analysis methodology
This analysis considers only announced and completed deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.
GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.
More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.