Trends in Healthcare Investments and Exits 2018...Sep 30, 2017 · [B]: Non-invasive monitoring,...

Trends in Healthcare Investments and Exits 2018Investments and Fundraising Reach All-Time Highs, Focus Grows on Early-Stage M&A

ANNUAL REPORT 2018

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2

Table of Contents

2017 Key Highlights 3

Healthcare Investments and Fundraising 5

Healthcare Big Exit M&A and IPOs 21

2018 Outlook 31

Glossary 32

About the Authors 33

Trends in Healthcare Investments and Exits 2018

Healthcare Investments and Fundraising Set Records in 2017

2017 Key Highlights: Investments

3

• U.S. healthcare venture fundraising set a record, reaching $9.1B – a 26 percent increase over 2016 – and surpassing the 2015 record of $7.5B.

• Investments into venture-backed biopharma, medical device and diagnostics and tools (Dx/Tools) companies are also expected to break a record in 2017, increasing 31 percent over 2016 to reach $15.5B.

• Spikes in Q1 and Q4 biopharma Series A deals propelled the sector to another record year, posting $2.8B in investments.

• Biopharma investment centered on oncology and platform companies. Platform companies piqued investor interest, as their technologies showed promise for multiple exits across different indications.

• Non-invasive monitoring, especially in cardiovascular, uro/gyn and neuro, took off in medical device Series A investments.

• Neuro investment surged in 2017, with significant interest from niche investors and incubators.

• Artificial intelligence spurred tech investor interest in Dx/Tools, leading to record investment.

• Liquid biopsy investment exploded, punctuated by $1.8B in investments into Guardant Health, GRAIL and Human Longevity.


Biopharma and Device M&As Focused on Early-Stage Companies

2017 Key Highlights: Exits

4

• Biopharma saw a wave of IPOs, beating 2016’s total, while big exit M&A activity slowed. IPOs had a significant upswing in pre-money valuations.

• Oncology deals led M&A activity and dominated IPOs, accounting for 36 percent of all exits in 2017.

• Biopharma M&A continued to focus on early-stage companies, while IPOs shifted to later stage.

• Crossover investors scaled back their biopharma investments from 2015 but continue to drive their existing portfolio companies to IPO.

• Device M&A activity continued at a steady pace, with a focus on minimally invasive devices and next-gen visualization/imaging companies.

• PMA/De Novo 510(k) Device M&As have shown better returns and time to exit than iterative 510(k) exits; 2015 – 2017 returns now beat biopharma M&A upfront values and multiples.

• Dx/Tools had no M&A exits in 2017 and only one IPO. Substantial private investment, however, permits these companies to continue their development.


5

Healthcare Investments and Fundraising: Healthcare Sectors Set Record Highs in 2017


6

Healthcare Fundraising Reaches New HeightsU.S. Healthcare Venture Fundraising*, 2009 – 2017

$5.2B

$1.8B

$3.7B $3.6B$3.9B

$6.1B

$7.5B$7.2B

$9.1B

2009 2010 2011 2012 2013 2014 2015 2016 2017

*SVB estimates the dollars allocated to healthcare by all U.S. venture funds.Source: PitchBook and SVB proprietary data

Healthcare venture funding hit a new high in 2017. The increase started in 2014 when fundraising jumped 50% over the previous year. This has led to a large pool of capital available to invest in venture-backed companies.

Venture healthcare investors have recently focused on biopharma and Dx/Tools. As Dx/Tools companies integrate computational methods such as artificial intelligence, we see tech investors, many new to healthcare, starting to invest in these deals.

Over the past few years, traditional VCs scaled back medical device investments. This trend reversed in 2017.

Looking ahead, we anticipate fundraising will continue to be strong, but will decline to the $6B-7B range in 2018.

HC VC $ Fundraised($ BILLIONS)


7

Healthcare Investments Are Projected to Reach a Record of $15.5B in 2017, a 31% Increase over 2016U.S. Biopharma and Device Investments and Deals, 2010 – 2017

*SVB estimated numbers for 2017.Note: PitchBook data does not contain a separate Dx/Tools category. Most Dx/Tools deals appear to be contained within the biopharma, device and services categories.Source: PitchBook, NVCA.

$4.4B $4.4B $4.8B $5.2B

$7.1B

$10.4B

$8.2B$10.5B476 469

498 559 595

641

546 548

0

100

200

300

400

500

600

700

$0

$2

$4

$6

$8

$10

$12

2010 2011 2012 2013 2014 2015 2016 2017*

Pharma & Biotech ($B) Pharma & Biotech (# of Deals)

$3.1B$3.9B $3.7B

$4.0B$4.7B

$4.2B$3.6B

$5.0B474

544 577 578 603 584

499 507

0

100

200

300

400

500

600

700

$0

$1

$2

$3

$4

$5

$6

2010 2011 2012 2013 2014 2015 2016 2017*

HC Devices & Supplies ($B) HC Devices & Supplies (# of Deals)

Biopharma investment is projected to hit a record in 2017, while the number of deals remained stable. As a result, average deal size rose. In particular, we saw a large increase in mega-rounds in Q4 2017. Cullinan Oncology, Arcus Biosciences and Allakos each raised over $100M.

Device funding and deal levels were steady, although funding may be lower than shown because some Dx/Tools deals are counted in the device category. The device sector’s active M&A market and uncrowded investment space make it attractive for investors. As a result, we are seeing traditional venture investors return to this sector.

BIOP

HARM

ADE

VICE

S


5

13

16

17

36

9

12

16

19

38

Anti-Infective

Orphan/Rare Disease

Neuro

Platform

Oncology

2016 2017

Oncology

Platform

Neuro

Orphan/Rare

Anti-Infective

2016 2017

# of Investments 125 144

Total Series A Funding ($M) $2,334 $2,787

Corporate Investments (%) 26% 29%

8

Biopharma Series A Spikes in Q1 & Q4 Set A RecordU.S. Series A* Biopharma Investments, 2016 – 2017

A

B

C

$784M

$540M

$743M

$267M

$1,711M

Investors making big bets on new technologies led biopharma Series A activity to record levels in 2017.

[A]: Corporate investors often joined these early-stage syndicates, but they were least active in orphan/rare and neuro companies (20% and 22%).

[B] Oncology deals and dollars at least double the next closest indication.

[C]: The 2017 median deal was $9M, but Q1 and Q4 median deals had values twice that size.

*Series A investments include all U.S.-based first-round institutional or corporate venture investment, and all first-round investments equal to or greater than $2M regardless of investor. Source: PitchBook and SVB proprietary data.

2016 Median Series A Funding by Quarter ($M)

2017 Median Series A Funding by Quarter ($M)

75thQuartile

25thQuartile


$10.0M $6.3M $7.4M $7.5M

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

Q1 2016 Q2 2016 Q3 2016 Q4 2016

$18.4M

$6.0M$5.7M

$19.5M

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

Q1 2017 Q2 2017 Q3 2017 Q4 2017

9

Investors Seek Early-Stage Biopharma DealsMost Active Biopharma Investors*, 2016 – 2017

As venture fundraising hit highs, healthcare-focused VCs continued their torrid pace of investing in biopharma.

Median deal size in 2016 –2017 was $31M, slightly down from 2015 –2016’s median of $33M.

Corporate investors are active, making mostly early-stage bets. Those investing in the largest Series A deals include GSK’s SR One, Pfizer, Celgene and GV.

Alexandria led biopharma deals, though investments averaged under $2M per deal**.

*Most Active Biopharma Investors calculated as new (first-time) investments into companies in 2016 – 2017.**AREE, Inc. Earnings Press Release 9/30/17Source: PitchBook, press releases and SVB proprietary data.

# OF DEALS

89

10111213141516171819222326

Corporate Investors


8

9

15

16

27

70

3

5

1

3

3

6

3

4

4

6

5

10

Anti-Infective

Auto-Immune

Orphan/Rare Disease

Neuro

Platform

Oncology

Early Stage Late Stage Undesignated

10

Oncology, Platform Draw New Investor ActivityMost Active Biopharma Investors* by Indication, 2016 – 2017

*Most Active Biopharma Investors by Indication defined as Top 42 venture and corporate investors calculated as new (first-time) investments into companies in 2016 – 2017. Early Stage is defined as Series A & B; Late Stage defined as Series C and later.Source: PitchBook and SVB proprietary data.

We saw sustained investment in oncology, resulting from big wins by early-stage oncology investors. The number of oncology exits is double that of any other indication over the last five years. Investors see multiple-exit potential for platform technologies by leveraging their potential use in different clinical indications.Orphan/rare’s decrease in deal volume could be due to waning crossover investor interest.

Oncology

Platform

Auto-Immune

Orphan/Rare Disease

Anti-Infective

Neuro

$3,410M

$1,421M

$664M

$734M

$541M

$649M

# DEALS | $ MILLIONS

Logos represent any $25M+ financing raised in that time period/indication.


11

Massachusetts and Northern CA See Majority of ActivityNew Biopharma Investments* by Geography, 2016 – 2017

*New biopharma investments defined as Top 42 venture and corporate investors calculated as new (first-time) investments into companies in 2016 – 2017.Source: PitchBook and SVB proprietary data.

China3 deals $179M

United Kingdom8 deals $257M

Israel4 deals $78M

Canada4 deals $353M

Germany6 deals $142M

NorthernCA51 deals $2,118M

Southern CA22 deals $692M

MA72 deals $2,310M

NY11 deals $306M

WA7 deals $249M

Top 5 U.S. Biopharma Top 5 OUS Biopharma


7

5

5

6

4

1

3

7

7

11

Ophthalmology

Cardiovascular

Neuro

Orthopedic

Non-InvasiveMonitoring

2016 2017

$97M

$63M

$72M

$50M

$27M


Orthopedic

Neuro

Cardiovascular

Ophthalmology

2016 2017


Total Series A Funding ($M) $248 $342


Median Round Size ($M) $3.3 $3.9

Non-Invasive Monitoring Drives Device Series AU.S. Series A* Device Investments, 2016 – 2017

12

A

B

Cardiovascular

Uro/Gyn Neuro

[A]: Deal activity in 2017 matched 2016, but Series A funding increased nearly 40%. Corporate venture increased by two-thirds. [B]: Non-invasive monitoring, orthopedic and neuro companies made up 68% of all Series A funding over the past two years. [C]: Non-invasive monitoring deals focused almost exclusively on cardiovascular in 2016 but shifted in 2017, with 64% of deals in other indications. Chart C details 2017 non-invasive monitoring deals by underlying indication.

Respiratory Ambulatory Metabolic Ophthalmology

Series A Investments includes all U.S. based first-round investments from institutional or corporate venture investment, and all first-round investments equal to or greater than $2M regardless of investor. Source: PitchBook and SVB proprietary data. Trends in Healthcare Investments and Exits 2018

C

3

4

5

7

8

13

Traditional VCs Increase Device InvestmentsMost Active Device Investors*, 2016 – 2017

*Most Active Device Investors calculated as new (first-time) investments into companies in 2016 – 2017. Source: PitchBook and SVB proprietary data.

Traditional venture investor activity in device rebounded in 2017. Nine firms had at least four deals in 2016 –2017, compared to only three firms in 2015–2016. In contrast to biopharma investors’ focus on early-stage deals, device investments by corporate investors were primarily in later-stage companies.

Corporate Investors

# OF DEALS

KCK Group


Incubators and niche corporate venture arms generated significant new interest in neuro, leading to a 2017 investment surge. Non-invasive monitoring companies continue to spark investor interest at smaller deal sizes. These companies have smaller development costs and less stringent regulatory requirements. We anticipate that drug delivery investment will continue to increase, as therapeutic treatments move outside the hospital.

1

4

2

5

4

5

7

9

5

3

0

3

1

3

1

4

5

3

1

1

1

5

1

6

ENT

Drug Delivery

Metabolic

Vascular Access

Non-Invasive Monitoring

Orthopedic

Neuro

Cardiovascular

Surgical

Early Stage Late Stage Undesignated

14

Niche Investors Generate Major Interest in NeuroMost Active Device Investors by Indication*, 2016 – 2017

*Most Active Device Investors defined as Top 35 venture and corporate investors calculated as new (first-time) investments into companies in 2016 – 2017. Early Stage is defined as Series A & B; Late Stage defined as Series C and later.Source: PitchBook and SVB proprietary data.

Surgical, Neuro and Non-Invasive Monitoring Vascular Access

Trends:

$163M

$451M

$276M

$97M

$117M

$167M

$197M

$235M

$192M

Logos represent any $25M+ financing raised in that time period/subsector.


Surgical

Drug Delivery

Metabolic


ENT

Orthopedic

Cardiovascular

Vascular Access

Neuro


California Dominates Device DealsNew Device Investments* by Geography, 2016 – 2017

15*New Device Investments defined as Top 35 venture and corporate investors based on new investments in 2016–2017. Source: PitchBook and SVB proprietary data.

NorthernCA25 deals $709M

SouthernCA6 deals $275M

MN7 deals $241M

PA5 deals $181M

MA10 deals $278M

Israel6 deals $63M

France3 deals $39M

Switzerland2 deals $74M

Ireland3 deals $55M

Italy2 deals $7M

Top 5 U.S. Device Top 5 OUS Device


2016 2017


Total Series A Funding ($M) $516 $500


Median Round Size ($M) $5.3 $4.7

16

Investors Make Smaller Series A Bets in Dx/ToolsU.S Series A* Dx/Tools Investments, 2016 – 2017

9

20

26

9

24

40

Dx Analytics

Dx Test

R&D Tool

2016 2017

$529M

$347M

$140M

B

[A]: While Series A deals increased, total funding declined, indicating that investors are making smaller Dx/Tools bets.[B]: R&D Tools companies are generating major investor interest. This is likely due to a lack of regulatory and reimbursementhurdles facing other Dx/Tools subsectors.[C]: While many Series A financings are R&D Tools, the majority of >$10M deals are AI-based bets in the Dx Tests and Dx Analytics subsectors.

C

*Series A Investments includes all U.S. based first-round investments from institutional or corporate venture investment, and all first-round investments equal to or greater than $2M regardless on investor. Source: PitchBook and SVB proprietary data.

A Artificial Intelligence

SyntheticBiology

Point-of-Care Dx Tests

Traditional R&D Tools

Logos represent all >$10M Series A

financings.


s

s

3

4

5

6

9

17

Tech-Focused Investors Emerge as Dx/Tools LeadersMost Active Dx/Tools Investors*, 2016 – 2017

*Most Active Dx/Tools Investors calculated as new (first-time) investments into companies in 2016 – 2017.Source: PitchBook and SVB proprietary data.

Tech-focused investors, including AME Cloud Ventures, Data Collective and Khosla Ventures, increased their participation in Dx/Tools investments.We anticipate that tech-focused investors will continue to apply their software expertise in Dx Analytics deals that leverage AI.While tech corporate venture participation has increased, these investors focus on a small set of deals most compatible with their own technologies.

# OF DEALS

Corporate Investors


16

19

42

Dx Analytics

Dx Test

R&D Tool


18

Investors Focus on R&D Tools and Dx TestsMost Active Dx/Tools Investors* by Subsector, 2016 – 2017

*Most Active Dx/Tools Investors defined as Top 24 venture and corporate investors calculated as new (first-time) investments into companies in 2016 – 2017.Source: PitchBook and SVB proprietary data.

$981M

$2,021M

$749M

Overall, Dx/Tools fundraising increased 40%, reaching $2.8B in 2017. Investments in GRAIL and Guardant Health accounted for $1.6B, nearly 60% of the total.R&D Tools fundraising increased by 50% in 2017, led by four $25M+ financings in Series A companies.Two 1H deals accounted for the majority of Dx Tests’ 2017 investment total of $1.8B. Still, the subsector showed a median round size of $15M, higher than R&D Tools and Dx Analytics.In stark contrast to R&D Tools, active investors avoided funding Series A Dx Analytics companies. Instead, these investors focused on later-stage companies that had more clinical validation.

Logos represent any $25M+ financing raised in that time period/subsector.


s

s

$608M

$179M

$1,853M

$537M

$0.0M

$400.0M

$800.0M

$1,200.0M

$1,600.0M

$2,000.0M

1H 2016 2H 2016 1H 2017 2H 2017

19

Seed/Series A Series B Series C/Later

Oncology Liquid Biopsy Investments Surge in 2017Investments in Liquid Biopsy and NGS, 2016 – 2017

NGS Fundraising Triples in 2017TOTAL FINANCING ($M)

Includes All Dx/Tools Liquid Biopsy and NGS Investments in 2016 – 2017.Source: PitchBook and SVB proprietary data.

2017$2,094M

2016$581M

$200M($500M)

$360M($540M)

$1,212M($1,312M)

$322M($569M)

RAISED IN 2017(TOTAL RAISED)

10 Other Companies

1710

12

14

B

Seed/Series A Series B Series C/Later

Round Size Pre-Money Valuation

$310M

$48M$9M$13M $19M

$58M

A

Explosion in NGS ValuationsMEDIAN ROUND SIZE AND PRE-MONEY VALUATIONS (2016 – 2017)

C

[A]: 85% of liquid biopsy funding went to Guardant Health, GRAIL and Human Longevity.

[B]: Investments into NGS deals increased by 3x in 2017, with activity concentrated in 1H.

[C]: Late-stage NGS deals saw huge pre-money valuations.

For a deeper look at this trend, read SVB’s Tech Advancements in Dx/Tools Draw Powerful New Players


https://www.svb.com/Blogs/Jonathan_Norris/Tech_Advancements_in_Dx/Tools_Draw_Powerful_New_Players/

Northern CA Remains Most Active Region for Dx/ToolsMost Active Dx/Tools Investments* by Geography 2016 – 2017

20

NorthernCA30 deals $2,575M

SouthernCA9 deals $362M

UT2 deals $79M

*Most Active Dx/Tools Investments defined as Top 24 venture and corporate investors calculated as new (first-time) investments into companies in 2016 – 2017. Source: PitchBook and SVB proprietary data.

MA10 deals $461M

WA2 deals $44M

Canada1 deals $3M

France2 deals $3M

China1 deal $30M

Italy2 deals $6M

Top 5 U.S. Dx/Tools Top 5 OUS Dx/Tools


21

Healthcare Big Exit M&A and IPOs: Biopharma and Device M&A Activity Are Focused on Early Stage


$0M

$5,000M

$10,000M

$15,000M

$20,000M

$25,000M

$30,000M

2013 2014 2015 2016 2017

M&A Upfront M&A Milestones TBE* Pre-Money IPO

22

Biopharma IPOs Rise as M&A Activity SlowsVC-backed Biopharma Exits, 2013 – 2017

Exit Values by Year$ MILLIONS

B

A

C

34

66

42

28

31

12

14

22

20

14

2013

2014

2015

2016

2017

IPO M&A

Top Exits by Indication2013–2017

*Milestones TBE defined as M&A payments that have not yet been earned.Source: PitchBook, press releases and SVB proprietary data.

$17.7B$21.3B

$26.9B $26.5B

$18.7B

Biopharma saw a wave of IPOs, while M&A slowed. Record high pre-money IPO valuations helped drive activity.

[A]: 2017 biopharma IPOs flourished while M&As declined. M&A activity was within the bounds of the past five year cycle, but below 2015 – 2016 highs.

[B]: Overall exit values were down, but biopharma pre-money IPO values skyrocketed. Median pre-money IPO value was a record for this cycle.

[C]: 62% of IPOs and 56% of M&As in 2013 – 2017 were clustered in five indications. Oncology led with four M&A deals in 2017, followed by orphan/rare (3), auto-immune (2) and platform (2).


2010 7 5 4

48

24 2515 12

Oncology Neuro Orphan / Rare Anti-Infectives Ophthalmology

M&A IPO

23

Biopharma M&A Continues to Focus on Early StageVC-backed Biopharma Big Exits by Stage*, 2013 – 2017

*Stage defined as last completed clinical trial in most advanced asset.Source: PitchBook, press releases and SVB proprietary data.

Median Upfront ($M) 213 225 200 200 171

Median Total Deal ($M) 457 413 570 600 461

Median Years to Exit 5.6 4.0 4.2 5.9 3.5

The attractive IPO market in 2017 meant fewer M&A deals. Large private venture rounds raised in the past few years made it difficult for companies to accept early-exit offers while also maintaining robust multiples.

[A]: Half of biopharma big exit M&As were early stage (pre-clinical and phase I). For 2017, 36% of the big exits were pre-clinical, compared to 25% for the 2013 – 2017 cycle.

Buying early-stage companies allows big biopharma companies to replenish their pipelines. The five pre-clinical big exits in 2017 were acquired by large players Gilead, Merck, Celgene, Astellas and Bristol-Myers Squibb.

[B]: The median time to exit hit a record of 3.5 years from close of Series A. Six deals exited within three years, generating a 4.2x median upfront multiple on private capital invested (median deal value $250M). These deals provided tremendous returns to investors in a very short time.

1

57

252

3

4

8 24

4

99

52

1 1

3

1

1

1

2013 2014 2015 2016 2017

$7.0B

$8.0B

$16.6B $21.2B

$8.9B

A # of Big Exits

Phase IIIPhase IIPhase IPre-Clinical

Commercial

B


5

8

6

7

2

2016

46% Early Stage**

9

917

6

2015

44% Early Stage**

9

20

26

65

2014

44% Early Stage**

1

8

13

8

2

2013

32% Early Stage**

15

17

7

1

2017

19% Early Stage**

24

Biopharma IPOs Shift to Later-Stage CompaniesVC-backed Biopharma IPOs by Stage*, 2013 – 2017

*Stage defined as current clinical trial in most advanced asset.**Early Stage defined as most advanced asset in Pre-Clinical and/or Phase I trials.Source: PitchBook, press releases and SVB proprietary data.

2013 2014 2015 2016 2017

Oncology IPOs 11 12 8 5 12

Orphan/Rare IPOs 3 3 5 7 7

% of total biopharma IPOs 41% 19% 31% 43% 63%

A surge in Q4 lifted the total number of IPOs to 31, meeting our projection of 28 to 32 for the year. Oncology and orphan/rare accounted for 63% of the biopharma IPOs.

[A]: Many biopharma IPOs in this five-year cycle were early stage (pre-clinical and phase I). We saw a dramatic shift in 2017 from early-stage to phase II and III companies going public. This signals a public market focus on actionable clinical data, andless on the promise of early-stage technologies.

[B]: More than half of biopharma IPOs in 2017 involved oncology and orphan/rare companies – compared to just 32% between 2013 and 2016. Oncology IPOs more than doubled over the 2016 total.

B

Phase IIIPhase IIPhase IPre-Clinical Commercial

A


IPO Pre-Money Value$ MILLIONS

25

Biopharma Pre-Money IPO Valuations Hit StratosphereVC-backed IPOs by Pre-Money Valuation and Dollars Raised, 2013 – 2017

Source: PitchBook, press releases and SVB proprietary data.

*Pre-money IPO valuation divided by venture capital invested.**Cormorant Asset Management, Deerfield Management, EcoR1 Capital, Fidelity Investments, Foresite Capital Management, Jennison Associates, Partner Fund Management, Perceptive Advisors, RA Capital Management, Redmile Group, Rock Springs Capital, Sectoral Asset Management, Viking Global Investors, Wellington Management, Woodford Investment Management

$0$50

$100$150$200$250$300$350$400$450$500

2013 2014 2015 2016 2017

$206M

$141M

$193M$140M

$295M

2013 2014 2015 2016 2017

IPOs Raised Over $100M 8 12 13 1 12

% of IPOs Raised Over $100M 24% 18% 31% 4% 39%

$0$15$30$45$60$75$90

$105$120$135$150

$71M$62M

$71M$52M

$81M

C

[A]: Biopharma pre-money IPO valuations hit a record $295M in 2017, nearly 50% higher than the previous record.

[B]: IPOs also had a median invested capital multiple* of 2.8x, resulting in up-round IPOs for many of these companies.

[C]: Crossover investors led the strong IPO class: the top 15 healthcare crossover investors** participated in 10 of 12 of 2017’s $100M+ IPOs. We anticipate that IPOs will remain a viable financing option for crossover investments that have solid initial clinical data.

A IPO Proceeds$ MILLIONS

B

75thQuartile

25thQuartile

IPO Median Pre-Money IPO Median Dollars Raised

2013 2014 2015 2016 2017


$0M

$1,000M

$2,000M

$3,000M

$4,000M

$5,000M

$6,000M

$7,000M

$8,000M

2013 2014 2015 2016 2017

M&A Upfront M&A Milestones TBE* Pre-Money IPO

26

Device M&A Activity is StableVC-backed Device Big Exits, 2013 – 2017

Exit Values by Year$ MILLIONS

B

A

C Top Exits by Indication2013 – 2017

*Milestones TBE defined as M&A payments that have not yet been earned.Source: PitchBook, press releases and SVB proprietary data.

$2.8B

$6.4B

$7.6B

$4.9B $4.9B

There were nine acquisitions in 2H 2017, each led by a different acquirer.

[A]: Device IPO and M&A activity matched 2016, but each of the last two years saw fewer deals than 2014 and 2015. M&A activity far outpaced IPO activity for 2013 –2017.

[B]: M&A in 2017 outperformed the 2013 – 2017 cycle. NeoTract’s$1.1B deal ($725M upfront) drove this value.

[C]: Between 2013 – 2017, 76% of M&As and 45% of IPOs were clustered in five indications. Cardiovascular (3), drug delivery (2) and vascular (2) were the only indications that had multiple M&A big exits in 2017.


2

10

11

3

3

12

18

19

13

14

2013

2014

2015

2016

2017

IPO M&A

19

12 118 8

1

4 4

3 1

Cardiovascular Vascular Surgical Ophthalmology Orthopedics

M&A IPO

Median Upfront ($M) 127 180 125 120 113

Median Total Deal ($M) 175 185 141 380 275

Median Years to Exit 6.6 6.9 7.0 8.1 7.7

U.S. CommercialCE Mark OnlyNon-approved

1 1

42 3

31

5

4 3

8

15

10

7 8

2013 2014 2015 2016 2017

27

Device Shows Earlier Exits and Higher ValuationsVC-backed Device by Stage*, 2013 – 2017

*Stage defined as last completed clinical trial in most advanced asset.Source: PitchBook, press releases and SVB proprietary data.

[A]: Large companies (e.g. J&J, Boston Scientific) drove M&A deals in 2017, although longtime acquirer Medtronic remained absent. Large acquirers targeted innovative technologies, including those focused on minimally invasive solutions (5) and advanced imaging/visualization platforms (3).

Since 2014, 37% of device M&A deals were CE Mark only or non-approved. These deals had a 4.5x median upfront multiple in 2017 – twice that of FDA-approved companies.

[B]: Device deal structures shifted during this cycle. 2016 and 2017 deals had a larger proportion of milestones to be earned (60%) vs. 2013 to 2015 (19%).

The device median time to exit from Series A declined in 2017 but still the time exceed the five year trend. If the number of non-FDA approved deals continues to rise, we anticipate time to exit to decrease.

$2.3B

$4.3B

$3.7B

$4.4B$4.6B

A # of Big Exits


B

28

PMA/De Novo 510(k) Upfront Multiple and Value Exceed Biopharma LevelsVC-backed Device M&A by Pathway, 2015 – 2017


Since 2015, PMA/De Novo acquisitions generated larger upfront multiples and quicker times to exit than iterative 510(k) exits. PMA/De Novo upfront values and multiples both now exceed those of biopharma’s. We anticipate healthcare-focused investors to place bigger bets in innovative, early-stage device companies.Prior to acquisition, iterative 510(k) pathway companies often require both FDA clearance and funding for commercializing and ramping revenue. These obstacles increase required capital and lengthen time to exit. In contrast, nearly all innovative PMA/De Novo acquisitions occur before approval by the FDA.

2015 – 2017 Stage at ExitMedian

Invested ($M)

Median Upfront

($M)

MedianUpfrontMultiple

Median Total Deal

($M)

Median Total Deal Multiple

Median Time to

Exit (Years)

510(k) M&As25 Exits $50 $100 2.3x $110 3.4x 9.0

PMA/De Novo 510(k) M&As

21 Exits$51 $225 4.3x $325 6.7x 5.5

Biopharma M&As56 Exits $37 $200 4.2x $557 11.7x 4.3

1

2

8 11

23

28

28

1

≥ Phase IDevelopment StageCE Mark OnlyFDA-Approved < Phase I


Mean Years to IPO 10.9 6.5 9.4 N/A N/A 4.1Mean Years to Big Exit 9.1 8.4 7.8 6.4 2.6 4.7

0 to 1X 1 to 2X 2 to 4X 4 to 7X 7 to 10X >10.1X

IPO M&A

2013 2014 2015 2016 2017

29

No 2017 Dx/Tools Exits, but Opportunities Lie AheadVC-backed Dx/Tools Exits, 2013 – 2017

Exit Values by Year$ BILLIONS

B

A

C IPO/Exit Multiples*2013 – 2017

$1.0B

$2.8B

$1.4B

$1.5B

NoExits

[A]: Despite heavy investment in the Dx/Tools sector, exits proved elusive in 2017, with only a single IPO.

[B]: Companies in the R&D Tools space largely dominated big exits, accounting for 62% of M&A activity in 2013-2017.

[C]: Large-multiple big exits (>7x) in 2013-2017 typically had short exit times and small amounts of invested capital (median investment of $10M). IPOs had lower multiples and longer times to exit, and most post-IPO companies underperformed.

We anticipate big exits in the next few years, with tech giants making more investments and emerging as potential acquirers.


*IPO multiple calculated as estimated pre-money valuation divided by private invested capital. Exit multiple calculated as upfront deal value divided by private invested capital.

4

7

5

1

3

10

8

5

2013

2014

2015

2016

2017

IPO M&A

Median Upfront ($M) 350 133 164 225 N/AMedian Total Deal ($M) 450 239 164 325 N/AMedian Years to Exit 8.2 6.0 3.6 8.5 N/A

R&D Tools

Dx Analytics

Dx Tests

6

9

22

1

75 4

5

2


30

Despite a Pullback, Crossovers Remain ActiveTop 15 Crossover* Activity and Exits, 2013 – 2017

*Cormorant Asset Management, Deerfield Management, EcoR1 Capital, Fidelity Investments, Foresite Capital Management, Jennison Associates, Partner Fund Management, Perceptive Advisors, RA Capital Management, Redmile Group, Rock Springs Capital, Sectoral Asset Management, Viking Global Investors, Wellington Management, Woodford Investment Management**Average months to exit from last crossover round of financingSource: PitchBook, press releases and SVB proprietary data.

[A]: Crossover private investment peaked in 2015, and returned to normal activity in 2016 – 2017.

Favorable market conditions drove quicker exits in 2013-2014 and 2017. Record time to exit in 2017 could drive strong crossover private investment in 2018.

[B]: With the highest exit rate, orphan/rare bets have paid off for crossover investors. However, there are limited future exits unless crossovers reinvest in this indication. There were only two new orphan/rare private crossover investments in 2017.

Fifty-one private companies in these indications make up a strong pipeline for future IPOs. Oncology had the most exits in 2017 and the largest pipeline, suggesting a major role in 2018 IPOs.

26

716

9 7

23

17 26

3

7

31

64

2535

3

7

5

4

4

4

4

4

6

5

Top 15 Crossover Private InvestmentsA Most Active Biopharma Indicationsand Exits

B

2013 2014 2015 2016 2017Total Investments 14 42 74 39 47IPO / M&A 9 / 2 20 / 5 40 / 6 6 / 1 8 / 0Months/Exit** 7.4 6.6 9.0 9.8 3.3

Dx/Tools

Medical Device

Biopharma

Oncology Platform Orphan/Rare Neuro Ophthalmology

Exit Percent 53% 29% 89% 60% 70%IPO / M&A 23 / 3 7 / 0 14 / 2 7 / 2 6 / 1Months/Exit** 8.2 9.0 9.1 4.0 8.2

Still Active

Total Exits


2018 Outlook

31

• Annual healthcare venture fundraising will decline to $6B - 7B, as a number of larger firms closed new funds in 2017.

• Biopharma investors will likely slow their deal pace.

• Biopharma M&A deals will reach 20-plus big exits based on available acquirer cash and the need to replenish pipelines.

• A market driven by a steady pipeline of crossover investor-backed oncology companies should again achieve 28 to 32 IPOs. There were 31 IPOs in 2017.

• Due to a steady M&A market and quick exits in PMA/De Novo 510(k) companies, investments in medical device will increase. Traditional venture investors will lead this upswing.

• Early stage device M&A will continue. Neuro and drug delivery companies may join cardiovascular companies to spur the next flurry of early-stage device acquisitions.

• Dx/Tools investments in 2018 will dramatically decline, down 25 percent from 2017, although the number of deals is expected to stay steady.

• We anticipate more investments in the Dx Analytics subsector as companies develop AI-assisted technologies. Increasingly, these companies will receive backing by tech-focused investors. We will also see R&D Tools companies spin off Dx Test and Dx Analytics companies, as their research technologies develop into clinically relevant approaches.

• Liquid biopsy investments will slow, as current companies will look to validate their technologies.

• Despite no Dx/Tools M&A activity in 2017, we anticipate a few exits in R&D tools companies. Tech giants may make move from investing to acquiring promising Dx Analytics companies.


32

GlossaryBig ExitsBig Exits defined as private, venture-backed merger and acquisition transactions in which the upfront payment is $75 million or more for biopharma deals and $50 million or more for device and Dx/Tools deals.

Initial Public OfferingIPO defined as a venture-backed company raising IPO proceeds of $25 million or more.

Deal DescriptionsStructured Deal defined as a pay-for-performance acquisition where some of the deal value is paid upfront when the deal closes, but also contains additional value based on milestones that must be achieved before it is realized.

All-in Deal defined as an acquisition where the full deal value is paid on deal close.

Upfront Payments defined as initial proceeds from an acquisition paid upon the close of a structured deal; it does not include milestones.

Milestones to be Earned defined as proceeds from an acquisition that are paid once predetermined milestones are met.

Total Deal Value defined as the full value of the acquisition, including any milestones to be earned.

Time to Exit defined as the time from the close of a company’s first institutional round of financing to the exit.

Corporate InvestorCorporate investor defined as both venture and parent company investment into venture-backed companies

RegulatoryNon-approved defined as a device company that has no regulatory approval for its product.

CE Mark Only defined as a device company that has CE Mark approval but has not received FDA approval. CE Mark is a European Union designation that is typically less difficult to obtain than FDA approval, and the approval process often has a faster timeline.

U.S. Commercial defined as a device company that has received FDA approval of its product and usually is in commercial stage.

Series ASeries A defined as all first-round institutional or corporate venture investment, and all first-round investments equal to or greater than $2M regardless of investor.

Indication DefinitionsNeurology( (Neuro) defined as CNS, pain and psychology companies.

Non-Invasive Monitoring defined as medical data collection through sensors and other technology.

Dx Tests defined as proprietary Yes/No diagnostic tests.

Dx Analytics defined as actionable data analytics to help determine/direct treatment.

R&D Tools defined as research equipment/services for biopharma and academia.


Trends in Healthcare Investments and Exits 2018 33

About the Authors As a Managing Director, Jonathan Norris spearheads strategic relationships with many healthcare venture capital firms and also oversees business development efforts for banking and lending opportunities . In addition, he helps SVB Capital through sourcing and advising on limited partnership allocations and direct investments.

Norris speaks at major investor and industry conferences and authors widely cited analyses of healthcare venture capital trends. He has more than 17 years of banking experience working with healthcare companies and venture capital firms. Norris earned a bachelor’s degree in business administration from the University of California, Riverside, and a juris doctorate from Santa Clara University.

Jonathan NorrisManaging DirectorSilicon Valley [email protected]

Caitlin Tolman is a Senior Associate with SVB’s Life Science and Healthcare team. A five-year veteran of the team, she provides market research and targeted analyses of historic and current investment trends within the life science and healthcare venture capital industry. Tolman works to strengthen and deepen relationships to build the SVB network and offer meaningful connections for both VC firms and SVB clients. Her passion for innovation is evident in the work she does every day to identify emerging industry and market trends.

After graduating with honors from the University of Massachusetts, Amherst, Tolman joined SVB as a client service advisor in 2007. She then held a role in SVB’s Global Sales and Solutions group and helped to drive various product and service solutions, particularly in cash management and payments.

Caitlin TolmanSenior AssociateSilicon Valley [email protected]

Thomas Joyce is a Life Science Senior Associate based in Boston, where he performs strategic advisory services with a focus on Dx/Tools mergers and acquisitions.

Joyce was previously a Senior Associate in SVB’s commercial bank, focused on financial analysis, portfolio management, business development and underwriting of complex credit transactions for life science and healthcare companies. Prior to SVB, Joyce was responsible for originating and analyzing private equity transactions for KamylonCapital, a principal investment firm. Joyce earned a bachelor’s degree in finance with a minor in economics from Suffolk University’s honors program, graduating summa cum laudeand as a member of the Beta Gamma Sigma Honors Society.

Thomas JoyceSenior Associate SVB [email protected]

As a Healthcare Investments Consultant, Ritish Patnaik helped developed SVB’s Dx/Tools classification system, which led to SVB’s Tech Advancements in Dx/Tools Draw Powerful New Players Report. In addition, he helped analyze the final data set, create graphs and put together takeaways for the investment trends presented in this report.

Patnaik is pursuing a Ph.D. in Bioengineering at Stanford University, where he is creating a multi-omic liver cancer test via magnetically tagged liquid biopsy. Patnaik earned a bachelor’s degree in Biomedical Engineering at Columbia University.

Ritish PatnaikHealthcare [email protected]

mailto:[email protected]


https://www.svb.com/Blogs/Jonathan_Norris/Tech_Advancements_in_Dx/Tools_Draw_Powerful_New_Players/


This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Silicon Valley Bank is registered in England and Wales at Alphabeta, 14-18 Finsbury Square, London EC2A 1BR, UK under No. FC029579. Silicon Valley Bank is authorised and regulated by the California Department of Business Oversight and the United States Federal Reserve Bank; authorised by the Prudential Regulation Authority with number 577295; and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request.©2018 SVB Financial Group. All rights reserved. SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq: SIVB). CompID-1110

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