January 24, 2022

Venture Capitalists are all in on High-Tech Healthcare

By Todj Gozdeck, CPA, New England Transaction Advisory Services Leader

Venture Capitalists are all in on High-Tech Healthcare Transaction Advisory

The technology industry has long attracted large amounts of venture capital. As the nation fights a war against the COVID-19 virus, venture capitalists increasingly see healthcare — and particularly medtech — as a kind of national defense. The deal market has never been as robust as it is right now, and high-tech healthcare companies are front and center. Despite uncertainty and risks, healthcare and medtech have been generating deals and dollars rapidly and on a large scale.

According to the PitchBook Venture Monitor, biotech and pharma deal values rocketed in the third quarter of 2021 and are likely to continue rising. Consider that in 2019, there were 949 biotech and pharma deals valued at a total of $17.6 billion. In 2020 there were 1,042 deals valued at $27.4 billion (a new high) and by September 30, 2021, 871 deals were closed during the year for a total of $28 billion.

Individual biotech and pharma deals are also getting bigger, reaching an average size of $35.8 million in 2021, up from $28.9 million a year ago and around $10 million in 2011.

It’s not just big companies that are gaining attention. Many companies seeking to cure disease are finding cash, according to Term Sheet, as are companies targeting treatments. For example, Cambridge, Massachusetts-based Rectify Pharmaceuticals, which focuses on genetically transmitted diseases, attracted $100 million in a raise co-led by Atlas Venture, Omega Funds, Forbion, and Longwood Fund. San Francisco-based biotech Culture Biosciences raised $80 million led by Northpond Ventures along with Synthesis Capital.

Companies that provide services to pharma are also attracting investment. Pitchbook reported that San Francisco-based Slope, which assists with remote clinical trials, raised $20 million led by NEA. El Segundo, California-based Lightship, which does virtual clinical trials, attracted $40 million. Reify Health raised $220 million over the summer as companies seek to serve the clinical trial industry.

Serving insurers and employers also can be a winning formula. Mountainview, California-based Lark Health uses AI to help health insurance plan members stay healthy. Lark recently attracted $100 million in a raise led by Deerfield Management Company. New York City-based Insurights uses AI to help employers understand their health and wellness benefits. Insurights raised $22 million in a round led by Group 11.

Another way to win over Wall Street is by helping hospitals and physicians optimize their use of technology. Austin, Texas-based Insiteflow, which specializes in electronic health records, raised $2.3 million in a round led by Silverton Partners. With telehealth taking off, New York City-based Alloy, a telehealth company targeting women over 40, raised $3.3 million in seed funding through Kairos HQ and PACE Healthcare Capital.

A well-established healthcare VC infrastructure is fueling the influx of cash. There is a long list of healthcare VC funds that bring expertise in evaluating companies and their risks and rewards. The Longwood Fund says it offers more than money — it also offers a history of “operational leadership and strategic guidance.” Meanwhile, Atlas Venture, a biotech VC firm in business since 1993, focuses on seed rounds, seeking “compelling opportunities to build scalable businesses and realize value.” Omega Funds, founded in 2004, focuses on life sciences companies from seed rounds to commercialization. Omega portfolio companies have brought 46 products to market that target everything from cancer to rare diseases.

It’s clear that interest is soaring in healthcare and medtech, but these investments do come with risk. While some companies are already profitable, many are deep into R&D with little to no revenue. They are attracting capital based on prospects alone. For example, cell therapy company MiNK Therapeutics raised $40 million through 3.3 million shares priced at $12 per share. The company racked up a $16.2 million loss in 2020 without revenue, but investors are betting on a bright future.

The healthcare market may be benefiting from changes in recent years. Bain Capital noted that “new tools, technologies, and processes were deployed to speed up drug development.” This could continue, accelerating healthcare R&D and investment. “The winners in healthcare private equity will be those that can identify the future implications of Covid-19,” according to Bain.

Healthcare is more of a priority than ever, and private investors and government agencies are putting their money where their medicine is. In many industries, the new norm may be a watered-down version of the past. But for healthcare, the new norm could lead to better, faster processes and healthy doses of capital, even if funding falls off from highs as the pandemic wanes.

Marcum’s Transaction Advisory Services team is well versed in the nuances of dealmaking in the healthcare industry. Throughout the deal lifecycle, Marcum professionals are ready to help healthcare clients achieve their transaction goals and optimize performance by establishing prioritized, detailed transaction and integration plans, emphasizing speed, buy-in and communication. For more information, contact Todj Gozdeck at todj.gozdeck@marcumllp.com.