HSBC’s Venture Healthcare Report: Are we out
of the woods, yet? provides an overview of investment activity,
valuations and step-ups for venture-backed healthcare
companies.
- Flat valuations are the new up as many companies struggled to
grow into frothy valuations from 2021 and 2022. However, the top
10% of deals secured large funding rounds at step-ups in
valuations
- In 2023, about 50% of financings in healthcare were
add-on/insider rounds to help fund companies to new
investor-revised milestone expectations
- Crowded and difficult fundraising environment in 2024 is
anticipated as many insider rounds will need to close new
investor-led financings
- Continued maturation of artificial intelligence and machine
learning will spur investor interest across all four healthcare
sectors
A significant number of healthcare companies will face
challenges raising capital in the coming year, leading to valuation
re-sets and possibly consolidations, according to HSBC’s Venture
Healthcare Report: Are we out of the woods yet? Despite venture
capital available for investment, investment dollars declined 28%.
For the best deals, however, capital remained plentiful with large
rounds and valuation step-ups.
The report shows that 2024 will bring about further
transformation in key sectors (biopharma, healthtech, medical
devices and dx/tools) led by a focus on patient needs, new
technologies and strong partnerships.
“In 2023, technology and business-model disruption led to an
ideal environment for real innovation, and we noted that
sector-leading companies had significant funding rounds, which we
think will continue in 2024,” said Lead Author and Managing
Director Jonathan Norris. “However, with global economic
uncertainty expected to continue into 2024, companies that have not
hit significant value inflection in development or revenue may have
trouble raising new investor-led rounds, leading to low value
M&A or private company consolidation, and some may have to shut
down.”
Biopharma
The trend of large first-financing deals will continue, likely
marked by the re-emergence of “hub and spoke” deals designed to
control cost and generate unique M&A opportunities. However,
first-financing deals are anticipated to continue trailing overall
investment, as investors maintain a restrained deal pace and expand
interest towards later-stage deals at reduced valuations. Metabolic
and neuro are two indications poised for increased investment. We
expect significant drip-feeding, consolidations, and shut-downs for
companies that have exhausted insider rounds and have not been able
to hit significant value inflection points. Some deals might be too
early to capture investor interest, as the focus has shifted
significantly to clinical data. M&A interest by big pharma and
biotech will remain strong but will continue to be divided between
the private market and recent IPOs from the last few years.
Healthtech
In 2024, we anticipate a smaller and more targeted pool of
investors, reinforcing their commitment to high-performing growth
companies and simultaneously revitalizing their early-stage
pipeline through new first-financing investments. We expect the
continued maturation of generative AI will spur investor interest.
Additionally, we foresee increased investments in value-based care,
focusing on both specialty care delivery models and provider
operations companies dedicated to enhancing provider
infrastructure, process and analysis, thus facilitating efficient
care delivery. We predict numerous mature companies considering
going public in 2024, yet well-funded ventures might choose to
wait, maintaining flexibility until the healthtech IPO window
reopens. As we progress into early 2024, numerous insider bridge
rounds from 2023 are likely to deplete, leading to consolidation
through all-equity transactions. This trend may involve larger,
more mature companies acquiring smaller entities to expand their
platforms and geographical footprints.
Medical Devices
We project first-financing activity to involve a combination of
smaller 510(k) pathway deals suitable for corporate M&A and
larger market PMA-pathway focused deals that will likely have
corporate investment from the outset. Imaging companies utilizing
hardware/software solutions and neurostimulation technologies are
expected to remain active areas of investment. 2024 will be a
challenging year for many mid-stage companies that have depleted
their insider rounds and find limited interest from new investors.
In contrast, companies involved in later-stage pivotal trials and
commercialization deals with strong markets and clinical
data/approval are expected to secure a mix of traditional VC and
growth funds. The deal-value increase in private M&A has
started to reinvigorate the later-stage scene. Recent cases of
early-stage deals achieving rapid, large exits and later-stage
valuation resets that later result in robust M&A deal values
have helped bring investors back to the table.
DX/Tools
We anticipate challenges to persist in first-financing activity,
as many investors in the dx/tools sector are focused on supporting
their existing portfolio companies or exploring opportunities in
later-stage commercialization plays. Technology focused on gene and
cell therapy production and manufacturing should remain a strong
area of investment. Companies in the computational biology sector,
particularly those focused on discovery or development processes,
are positioned to sustain increasing investor interest. We also
project that many of these companies will likely pivot from
providing platforms or engaging in discovery to developing their
own assets. The emergence of IPOs in 2024 appears unlikely, except
in one-off scenarios. Thus, many companies with high private
valuations from 2020-2021 will need to secure private new
investor-led financing. Despite the likelihood of valuation re-sets
for many companies, the underlying strength of the technologies is
expected to attract new investor interest, likely led by
traditional VCs.
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-stage companies with growth ambitions.
“The insights in our report provide an overview of investment
activity, valuations and step-ups for venture-backed healthcare
companies, supported by deep-sector expertise, historical
perspectives and data-informed predictions,” said Katherine
Andersen, Head of Life Science and Healthcare, HSBC Innovation
Banking. “We are committed to supporting the innovation ecosystem
by leveraging our industry experience and the strength and
stability of HSBC’s global platform.”
HSBC Innovation Banking in the U.S. includes a team of dedicated
bankers assembled across the Bay Area, Boston and New York City.
The proposition also has teams in the UK, Tel Aviv, and Hong Kong
that deliver a globally-connected, specialized banking expertise to
support a broad range of innovation businesses and their
investors.
For further discussion of the HSBC Venture Healthcare Report,
the Life Science and Healthcare Team will host an exclusive media
roundtable, featuring Head of Life Science and Healthcare Banking
Katherine Andersen, Head of Healthcare Investment Banking Becky
Stevenson, Managing Director Jonathan Norris and Managing Director
Chris Moniz.
WHEN: Tuesday, January 9th at 10:00 a.m. PST
WHERE: 140 Geary Street, 10th Floor, San Francisco,
CA
RSVP: Matt Kozar, Vice President of External
Communications
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