Supersized health IT deals helped investment in healthcare software and services companies surpass the biotech and medical device sectors last year, according to the Midwest Healthcare Growth Capital Report penned by BioEnterprise. It was the first time health IT investment had overtaken the other sectors since BioEnterprise began compiling these reports in 2005.
Midwest biomedical deals generated $2.5 billion in new equity investments in 2017 compared with $1.7 billion in 2016, according to BioEnterprise. Healthcare Software and Services sector took the lead with $1.2 billion, or 47 percent, raised by 110 companies, according to the report. That amount is nearly double what the sector raised in 2016 when 134 health IT companies raised $679 million. Biopharma raised $710 million (29 percent) across 101 companies compared with $353 million for 75 businesses in 2016. The medical device sector brought in $587 million (24 percent) across 151 companies compared with $696 million across 166 companies in 2016.
It was a striking development from previous reports. Historically, biopharma companies received the largest amount of investment per company, noted Aram Nerpouni, BioEnterprise President and CEO, in response to emailed questions.
Also, device companies receiving investment outnumber health IT and biopharma businesses every year. But last year the amounts raised by each of these sectors were much closer together.
[BioEnterprise is a sponsor of MedCity INVEST, a national healthcare investing event in Chicago, May 1-2. Nerpouni will be doing a deeper dive on the report’s findings at the conference.]
In a reflection of a broader trend across the country, more money is being invested in fewer deals. Health IT is an example of this trend. Three deals raised $800 million. They include Chicago-based Outcome Health’s $500 million Series A round; the $160 million raised by Bright Health in Minneapolis; and $140 million raised by Cincinnati-based PatientPoint.
Biopharma companies used to have the largest deals but that trend has shifted to health IT in the past few years. Here is a look at the largest deals over the past 5 years — it’s interesting to see how much these deals have grown over this span of time.
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.
- 2013 – Biopharma: $41 million and $34 million; Device: $30 million
- 2014 – Health IT: $150 million; Biopharma: $125 million and $80 million
- 2015 – Health IT: $43 million and $40 million; Device: $42 million
- 2016 – Health IT: $200 million, $80 million, and $70 million
- 2017 – Health IT: $500 million, $160 million, and $140 million
Source: BioEnterprise
Although Minnesota, Illinois, and Ohio tend to lead other midwestern states for healthcare dealflow and that gap seems to be widening, Nerpouni said it’s too soon to truly determine this.
“We don’t know what will happen next year. In addition, based on the graph and again the observations about the large deals, it is probably premature to say that the gap is widening between Illinois, Minnesota and Ohio. Without the three mega-investments [in health IT] the picture would look much different.”
Featured image: goir, Getty Images
