Healthcare sector explodes, driven by mega-deals

The covid-19 pandemic that shut down markets in early 2020 is now helping to lift healthcare investing, which has surged in the first half of 2021, according to a new report by Silicon Valley Bank.

Investment levels in the general healthcare sector in the US and Europe are already nearing last year’s total, as mega-deals fueled by large asset managers have dominated the first half of 2021, according to a new report from Silicon Valley Bank.

As detailed in “Healthcare Investments and Exits,” investments into healthcare companies reached $47 billion in the first half of 2021 across US and Europe, already approaching 2020’s full-year total of $50 billion.

Participation in mega-deals by hedge funds and growth firms helped drive up some of the activity. Larger round sizes in the first half were highlighted by 28 private financings in the healthtech sector that featured valuations of $1 billion or more.

While some of the surge can be chalked up to the overall explosion in venture activity exhibited over the last year-and-a-half, and specifically, the last six months, much of the investment and exit figures highlighted in the SVB report are centered around the response to the covid-19 pandemic, which continues to rage on in various countries.

But a major factor is also the greater expansion of the healthtech and biopharma sectors, as investments figures for healthtech in H1, $14.5 billion, already exceeds last year’s $10.6 billion. Biopharma’s $20.2 billion in investment in H1 is encroaching on the year end total of $24.8 billion.

IPOs and M&A

Meanwhile, IPOs are undergoing changes as the introduction of huge SPAC volume begins to shift market dynamics.

The IPO market in H1 was highlighted by 12 IPOs, each featuring a market cap of $1 billion or more. Some larger ones, such as Sana and Lyell, exceeded $4 billion and helped lift the total IPO market cap to 66 percent of 2020’s full year record.

But IPO valuations and post-IPO performance is down, according to the report, despite increases in private mezzanine financings and an otherwise robust IPO pipeline.

In all, the 84 IPOs in H1 2021 come close to that of 2020’s full year total of 112. The generally positive performance on the side of IPOs is contrasted with the overall negative de-SPAC performance.

SPAC-luster performance

If the healthcare sector is any indicator, post de-SPAC performance so far looks dismal. Since 2020, the healthcare industry has announced 36 de-SPAC transactions, with 16 in biopharma and 10 in healthtech. But of the 12 that have gone on to complete a de-SPAC transaction, 23andMe is the only company trading at a positive value, measured against the implied value at the time of de-SPAC.

Among those de-SPACs completed trading far below their implied value are Clover, trading -13 perent, Butterfly trading -42 percent, as well as the popular Hims, trading -36 percent, among many others.

But there are far more de-SPACs announced in the healthcare sector than have been completed, as the year end data for 2021 will paint a much fuller picture.