VC investment in healthcare sector soars in second quarter
More than 50% of all initial public offerings in the second quarter of 2014 were healthcare companies, as 24 venture capital-backed firms became publicly traded, compared to a more robust first quarter of 35 IPOs.
Yet venture capital investment in healthcare climbed 85% to $2.73 billion in the second quarter, compared to $1.47 billion in the first three months of 2014. Along with more dollars came more deals: 161 in the second quarter, compared to 125 deals in Q1. The VC spending increase in healthcare marks the fifth consecutive quarterly increase.
Both IPO and VC numbers are from CB Insights, a venture capital intelligence firm based in New York, which released its quarterly report this morning. It also found 36% of all healthcare VC deals were in medical devices, followed by 24% in biotechnology, 14% in drug development and 7% in pharmaceutical companies, totaling 81%, compared to 72% in the first quarter.
“The IPO growth in healthcare is pretty consistent over the last five quarters, as investors see strong pipelines and continued faith in the industry,” said Anand Sanwal, CB Insights co-founder and CEO. “Technology and the internet tend to be larger, but there were some megadeals among the healthcare companies.”
The largest was Intarcia Therapeutics, which raised $200 million in a growth equity financing and is currently conducting its phase III Freedom trial with a combination of a matchstick-sized osmotic pump inserted under the skin and filled with exenatide, an approved drug designed to help Type 2 diabetics who are also obese and unable to control their blood sugar levels with oral medications. The drug, known as an incretin mimetic, is based on incretin, a natural hormone the body produces to lower blood sugar after eating.
The miniature pump filled with a year’s supply of exenatide is designed to provide continuous and consistent drug therapy to treat Type 2 diabetes, according to Intarcia, which will release trial results later this year. Previously, exenatide had been a twice-daily self-injectable medication with a side effect of nausea that led users to stop taking it—a reason for the company’s use of the pump.
A second growth equity investment of $125 million went to Alignment Healthcare of Irvine, Calif., which works with hospitals and health plans providing healthcare coordination services.
CB Insights’ quarterly report said a record $13.88 billion was invested across 974 deals, mostly in internet, healthcare, mobile/telecommunications and software. The total amount spent was 39% higher than the previous quarter, with an 11% increase in deal flow.
Among the results:
- California companies attracted nearly $9 billion in VC spending—more than the next 15 states combined. New York was second with $1.15 billion—its highest over the last 10 quarters—and Massachusetts was third with $1.03 billion.
- Leading life sciences hubs Cambridge and San Diego saw the most healthcare VC deals, while Redwood City, Calif., captured the most funding.
- Nearly eight of 10 VC-financed companies took the mergers & acquisitions route during the second quarter.
- More than $5.64 billion was invested in internet companies, a 102% increase over the second quarter of 2013.
“The overall economy continues to be strong,” said Sanwal, “as many healthcare companies with IPOs have done well, compared to some uncertainty on the technology side.”