Venture Healthcare Market Entering Important Phase as Companies Must Secure New Financing or Face Tough Consequences
HSBC's Venture Healthcare Report: Shake It Off? analyzes the venture healthcare market in 2024, highlighting both challenges and opportunities. The report reveals:
1. Biopharma saw increased investment, with 51 $100M+ financings in 1H 2024.
2. Healthtech experienced a surge in earlier-stage deals after a decline in 2023.
3. Medical Devices maintained stable investment with a surge in first-financing deals.
4. DX/Tools faced challenges but saw growth investors participating in high-value financings.
The report emphasizes the need for companies to secure new lead investors or consider consolidation/shutdown if relying on dwindling insider-round cash. HSBC Innovation Banking's global teams continue to support the life science and healthcare ecosystem with specialized expertise.
- Biopharma investment doubled 2023 first-financing pace and was up 35% overall in 1H 2024
- 51 $100M+ biopharma financings in 1H 2024, with 30 adding new crossover investors
- Healthtech deal activity rose each quarter in 1H 2024
- Medical Devices saw a surge in first-financing deals and dollars in 2Q 2024
- DX/Tools companies with initial commercialization attracted growth investors in 6 high-value financings
- Companies with dwindling insider-round cash may face consolidation or shutdown
- DX/Tools first-financing investment continued to decline in 1H 2024
- Private M&A in Medical Devices and DX/Tools sectors has been weak in 2024
- Some companies with high valuations from 2020-2021 are experiencing flat or down rounds
- Closed IPO market and difficulty finding Series B investors in DX/Tools sector
Insights
The venture healthcare market is undergoing a volatile phase, with companies needing fresh capital to stay afloat. The emphasis on securing new financing highlights the precarious nature of these companies' current financial health.
Short-term, investors can expect continued volatility, with some companies potentially facing consolidation or shutdowns. The success of future investments will hinge on whether companies can achieve key value creation milestones to justify new rounds of funding.
Long-term implications include potential growth for firms that secure new, well-timed investments and the possibility of a stronger market re-emergence if these investments lead to significant advancements. However, the dependence on M&A and IPOs to drive returns could introduce additional risks if market conditions don't improve.
The distinction in investment trends across different sectors within the healthcare market sheds light on where future growth opportunities might lie. Biopharma continues to receive substantial investments, largely driven by successful venture spin-outs and management teams. This indicates a high investor confidence in sectors with established exit strategies like M&A and IPOs.
Meanwhile, healthtech shows resurgence with earlier-stage deals gaining traction, driven by improved financial prudence and capital-efficient models. This shift suggests a more sustainable growth approach over the 'growth at all costs' mentality previously seen.
While medical devices maintain stable investment, the notable increase in first-financing deals and median pre-money valuations is promising. However, the faltering private M&A market could be a red flag, potentially affecting exit opportunities and valuation stability.
HSBC’s Venture Healthcare Report: Shake It Off? explores whether companies can, in the words of Taylor Swift, “shake it off” and rebound from what has been a difficult financing and exit market
- 2023 was a year of triage as venture healthcare companies closed insider rounds and focused on existing portfolios, leading to a slower investment pace
- The first half of 2024 did have green shoots with increased investment across every sector, with more new investor-led financings, many at up-rounds
- Companies on dwindling on insider-round cash will need to find new lead investors or consider consolidation and/or shutdown
“Some companies continue to raise large rounds even in the down market, but the key question in 2024 is whether the prevalent insider rounds from 2022 and 2023 will provide enough runway for companies to reach a value-creation event that justifies new investment,” said Lead Author and Managing Director Jonathan Norris. “Most VCs possess substantial new capital available for new investments, and growth investors have become active once again.”
Biopharma
Helped by opportunistic IPOs and a strong private M&A market, biopharma was the bright spot for investment dollars in 1H 2024. Investment doubled 2023 first-financing investment pace and was up
Healthtech
In 2023, Healthtech investments significantly declined. The trend reversed in 1H 2024, with deal activity rising each quarter. The high volume of insider bridges and round extensions decreased as investors completed their triage and started to rebuild their portfolio by funding new deals. Although investments took longer to finalize, Healthtech experienced a surge in earlier-stage deals, where valuation overhang is less problematic. For later-stage financing, the growth at all costs approach of previous years has evolved. Companies that secured new investors in 1H 2024 were largely ones that demonstrated additional growth potential, adopted capital-efficient models, and significantly reduced burn.
Medical Devices
Med device continued its stable pace of investment, however, there was a surge in first-financing deals and dollars in 2Q 2024, led by strong venture capital syndicates and corporate support. We also noted more PMA focused early-stage investment, especially in neurology. Pivotal trial funding and commercialization for 510(k) cleared products continued to find a combination of VC, growth, crossovers and corporates. Med device had the most down-rounds in 2023, especially in Series B and later rounds, but in 1H 2024 median step-ups for later-stage deals remained above 1x while median pre-money valuations increased across the board. Stable investment, plus good M&A in 2023, positioned med device for strong M&A in 2024, but so far private M&A has fallen flat, with just two notable private M&A deals.
DX/Tools
Dx/tools first-financing investment continued its 2H 2023 slide in 1H 2024, down significantly from the previous three years. Investors felt the pressure of a closed IPO market and the fear of finding a series B investor that can bridge to the growth round. However, companies that got to initial commercialization have found that growth investors have come back, participating in six of the highest valued financings in 1H 2024. Valuations for early stage have remained strong, however companies with heady valuations from 2020-2021 are finding flat or down rounds. Private M&A continues to falter. So far in 2024, we have noted just two private M&A deals over
The HSBC Venture Healthcare Report was written and produced by HSBC Innovation Banking’s Life Science and Healthcare Team, which serves the innovation economy by providing products and solutions to early and growth-stage companies.
“The first half of 2024 provided real glimmers of hope with increased investment across every sector and numerous investor-led financings,” said Katherine Andersen, Head of Life Science and Healthcare, HSBC Innovation Banking. “Our mid-year report takes a deep dive into investment and exit activity, supported by our team’s deep-sector expertise, historical perspectives and data-informed predictions. We are committed to the life science and healthcare ecosystem globally and best serving our clients with our industry knowledge and the strength and stability of HSBC’s global platform.”
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FAQ
What were the key findings of HSBC's Venture Healthcare Report for 2024?
How many $100M+ biopharma financings occurred in the first half of 2024 according to HSBC's report?
What trends did HSBC observe in the Healthtech sector for 2024?
How did the Medical Devices sector perform in 2024 according to HSBC's report?
What challenges did HSBC identify for the DX/Tools sector in their 2024 report?
