When it comes to investment, M&A and IPO, devices and diagnostics remain a tad neglected – and biopharma the star – though 2014 was a boom year for healthcare and 2015 keeps going strong. Silicon Valley Bank just put out a report on that M&A and IPO activity, populated with some interesting facts and figures that contrast the biopharma and device industries.
“What we continue to see is that devices and diagnostic companies have to be later stage to be acquired,” said report coauthor Jonathan Norris, a managing director of SVB. “They tend to require FDA approval, so have raised a commercialization round and need more money – and take a longer time to exit – than we do in biopharma.”
After all, biopharma has a significantly higher M&A exit value for devices and diagnostics. Biopharma’s upfront median dollar value was $225 million, with a total deal value of around $413 million. Devices, by contrast, had a total deal value of $185 million, with an total deal value of about $239 million.
“Even though the companies are later stage, they’re not getting the values that biopharma can get,” Norris said, thanks to a couple of issues:
- The reception and post-IPO performance of tools and diagnostics has not been good – making him question whether that window is really open.
- Biopharma post-IPO performance, by contrast, has been strong – despite going public when frequently having assets in the early (preclinical or Phase 1) stages.
- There are fewer device acquirers out there now – exemplified by the Covidien/Medtronic merger.
- There are far more crossover deals in biopharma, with generalist players leading Series B or C rounds.
And the standard biopharma Series A is about double that raised in the medical device or diagnostics space, consistent with the above trends:
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’s top line numbers include:
- In 2014, healthcare venture fundraising increased 56 percent over 2013. Venture investment rose 30 percent over 2013, with $8.6 billion invested into healthcare companies.
- M&A rose 60 percent in the year, coming in at more than $20 billion – a 10 year high.
- A higher number of new companies are projected to launch in 2015 than in 2014.
Here are the top healthcare venture investors for 2014 – led, unsurprisingly, by OrbiMed:
Here are the top investors in devices:
And diagnostics/tools:
Notably, report says:
We expect increases in fundraising and investment levels will lead to a very active 2015, with a note of caution, however. When the window closes, and non-VC investors pull back, the industry could be left with a crowded private market and a lack of investors.
