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Summary of Healthcare Investments and Exits in 2021

Core Content

The year 2021 marked a significant milestone for the healthcare sector, with record-breaking investment and fundraising activity across biopharma, healthtech, Dx/Tools, and Device. Despite some slowdown in the latter half of the year, the overall trend showed continued growth and innovation, driven by the impact of the pandemic and increased interest in digital health solutions.

Main Points

• Record Investment: Total healthcare investment in 2021 reached $86B, a 30% increase compared to 2020 and more than double the 2020 figure.
• HealthTech Dominance: Healthtech investment surged by 157% compared to 2020, with a record number of $1B+ unicorns and a strong presence in alternative care and provider operations.
• Biopharma Growth: Biopharma investment hit a new record, with a significant increase in early-stage funding, especially in platform, neurology, and anti-infective areas. However, late-stage investment declined due to poor IPO performance.
• Dx/Tools Expansion: Dx/Tools investment also set a new record, with a notable increase in $100M+ financings, primarily in R&D tools. The sector saw a mix of performance in IPOs, with China-based companies outperforming their US counterparts.
• Device Sector: Device investment reached $8.792B, with non-invasive monitoring (NIM) and imaging leading early-stage activity. The sector also saw a record number of IPOs and private M&A deals.
• SVB's Role: Silicon Valley Bank (SVB) played a pivotal role in the healthcare ecosystem, with 50% of all VC-backed US healthcare companies that raised rounds since 2021 having a banking relationship with SVB. In 2021, 70% of all VC-backed US healthcare companies that raised more than $40M had a relationship with SVB.
• VC Exits: The venture-backed healthcare industry saw record IPO activity across all sectors, with healthtech, Dx/Tools, and Device leading in M&A deals. However, post-IPO performance was mixed, with many companies trading below their private valuations.
• Market Trends: The market saw a surge in early-stage activity, with seed/series A deals more than doubling from 2020. The average deal value increased significantly, driven by a rise in large $50M+ deals.
• Pandemic Impact: The pandemic accelerated investment in digital health solutions, especially in alternative care and provider operations. It also led to increased focus on home testing and platform technologies.
• Mega-Rounds: The number of mega-rounds (>$1B) increased, contributing to the rise in unicorns. These rounds were particularly prominent in healthtech and Dx/Tools.
• Future Outlook: While 2021 saw record fundraising, the anticipated drop in 2022 is expected due to the saturation of funds and a potential slowdown in investment pace.

Key Information

• Total Healthcare Investment (2021): $86B, up 30% from 2020.
• HealthTech Investment: $25.6B, with 157% increase compared to 2020.
• Biopharma Investment: $36.3B, up 53% from 2020.
• Dx/Tools Investment: $13.0B, up 30% from 2020.
• Device Investment: $8.792B, up 53% from 2020.
• SVB's Involvement: 50% of VC-backed US healthcare companies with rounds since 2021 and 70% of those raising over $40M had a banking relationship with SVB.
• Unicorns in 2021: 42, more than 4x the 2020 total.
• Top Sectors: Platform, oncology, and neurology were the top areas for investment in biopharma, with platform leading in seed/series A funding.
• Top Subsectors in HealthTech: Alternative care and provider operations saw the most investment, with alternative care accounting for 38% of total healthtech funding.
• Top Subsectors in Dx/Tools: R&D tools and Dx analytics were the most active, with Dx analytics showing the highest median pre-money valuation.
• Top Private Financings in 2021: Companies like DevotedHealth, Hinge Health, and Generate: Biomedicines raised significant capital, with some reaching over $12B post-money valuation.
• IPO Performance: The post-IPO performance for the 2021 class was down, with dx/tools and device companies breaking even and biopharma and healthtech seeing significant declines.
• M&A Activity: Healthtech and Dx/Tools had the most M&A deals, with three $1B+ private M&A deals and ten $200M+ publicized deals.

Structure

Healthcare Fundraising and Investments

• Investment Growth: Investment in healthcare nearly tripled from 2019 to 2021, with healthtech and biopharma leading the charge.
• Funds Raised: Venture fundraising reached a record high, surpassing $16.8B in 2020.
• Investor Activity: Notable firms like Flagship Pioneering, Arch Venture, and Orbimed raised significant healthcare-only funds in 2021.
• Deal Activity: Seed/series A deals more than doubled from 2020, with a notable increase in average deal value and a surge in early-stage investment in alternative care and provider operations.

Healthcare Exits

• Record Exits: The number of IPOs and M&A deals hit record highs across all sectors.
• Post-IPO Performance: Average post-IPO performance was down, particularly for dx/tools and device companies, with many trading below their private valuations.
• SPAC Mergers: While SPAC mergers increased, de-SPAC performance was poor.
• Biopharma Exits: Biopharma saw 92 public offerings, with a significant drop in post-IPO performance. Private M&A activity was down, but recently public companies saw increased activity.
• HealthTech Exits: Healthtech had the highest number of M&A deals, with a strong focus on alternative care and provider operations.

Market Trends and Outlook

• Early-Stage Growth: Seed/series A investment saw a sharp increase, with a notable rise in deal count and average deal value.
• Pandemic Influence: The pandemic drove investment in digital health solutions, particularly in alternative care and provider operations.
• Future Expectations: A potential slowdown in 2022 is anticipated, with a drop in venture fundraising and a possible resurgence in series C financing as companies need more capital to navigate the market.

Conclusion

2021 was a transformative year for the healthcare sector, characterized by record investment and fundraising, driven by the impact of the pandemic and a growing interest in digital health solutions. While the first half of the year saw robust investment, the second half experienced a slowdown, particularly in biopharma. SVB played a significant role in supporting these ventures, and the trend of early-stage activity and mega-rounds continued to shape the landscape. The future outlook suggests a potential shift in investment strategies as the market becomes more discerning and the need for capital increases.