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Hot IPO market drives US health tech surge

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Venture fundraising for healthcare tech investments jumped 10 per cent to hit a record  US$10.7bn in the US last year,  new data shows.

Silicon Valley Bank’s (SVB) Healthcare Investments and Exits report shows that strong M&A and IPO performance led to great markups and returns for limited partners, in turn, driving the fundraising.

Investment into venture-backed biopharma, medical devices, diagnostics and tools, and other types of healthtech reached US$32bn, slightly below the record set in 2018 but far ahead of the 2017 total.

Biopharma investments slightly decreased from a record 2018, while Series A declined 31 per cent. Series A investments in platform surpassed oncology for the first time.

Crossover investors continue to be active in funding Series B mezzanine rounds, signaling optimism for 2020 IPOs.

Device investing increased for a second year, led by large, late-stage deals. Sensing the continued, strong device IPO performance in 2020, crossovers and late-stage venture investors contributed to this upswing.

Diagnostics and tools investment saw a significant drop overall, with fewer late-stage mega rounds in 2019.

Healthtech venture-backed investments continued strong in 2019, hitting a record and cementing healthtech as the fastest growing healthcare sector.

Growth is largely attributed to alternative care and provider operations, each of which has received US$2bn+ in investments.

In 2019, VC-backed biopharma exits and returns barely trailed 2018’s record. Taken together, 2018 and 2019 returns nearly equal total returns from 2014–2017.

Robust mezzanine valuations coupled with positive IPO step-ups encouraged biopharma companies to go public, accounting for 50 IPOs in 2019.

The buoyant public market has created significant markups with up-round IPOs and positive post-IPO performance for the biopharma IPO class of 2019, with a record 20 $1B+ market cap companies at year-end.

The recent IPO surge also yielded multiple US$1bn+ acquisitions of recent venture-backed IPOs, indicating that acquirers remain active, despite private M&A deals equaling a five-year low.

Auris Health’s US$5.8B acquisition by Johnson & Johnson led device M&A returns to a new high; although without this deal, M&A had one of its weaker years for deal values.

The 2019 device IPO class set new highs in pre-money values and proceeds. Post-IPO, one company was acquired at a premium, while five of the remaining seven IPOs were trading ahead of their offering price at year end.

HealthTech IPOs rebounded in a big way in 2019. M&A had been the predominant form of liquidity for the last five years, but in 2019 IPOs accounted for 94 per cent of the total exit value.

US healthcare venture fundraising set another record in 2019, raising US$10bn to invest in healthcare companies.

M&A and IPO activity have directly impacted this increase. The buoyant IPO market has created significant markups with up-round IPOs. These newly public companies have seen solid performance, abundant access to additional capital, and public M&A at favorable premiums.

Even if these holdings are not liquidated in the short term, the potential returns have helped drive fundraising success.

Large US$50m+ mezzanine rounds to fund these IPO- hopeful companies have also dominated the sector since 17Q3.

Biopharma-focused investors that raised funds in 2019 include Vivo Capital, Third Rock Ventures, Flagship Pioneering, Vida Ventures, Omega Funds, MPM Capital, and Atlas Venture.

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