Digital and genomic investments help hold up medtech VC funding in 2014

Growing interest in digital health technologies and the desire to get in on the ground floor of genomics provided the medical devices sector with another relatively decent year for VC investments. The $3.89bn picked up by companies in 2014 might not have hit the heights of 2011, or even beaten the $3.91bn total of 2013, but it was still a solid top-line performance.

The numbers, however, mask the massive contribution from NantWorks, without which 2014 funding levels would have slipped significantly. The huge $250m last-minute December financing and a separate cash injection in January saved last year from being one of the worst since the height of the credit crunch – a reality that some in the medtech sector are more likely to recognise.

Readers will note that NantWorks also appeared in the pharma VC funding analysis with a $75m investment from Celgene. This dual inclusion reflects the company’s diverse network of businesses. Alongside drug discovery, the healthcare conglomerate also contains mobile health, genomic and device subdivisions.

Given the current consolidation in the industry and what many see as moves towards bundled, value-based healthcare it is perhaps NantWorks’ potential to provide end-to-end treatment that has attracted investors. The Kuwait Investment Authority, the sole participant in the $250m round, chose to sink its money into NantWorks' NantHealth, a division specialising in healthcare data.

The growing interest in the digital healthcare market was also behind the second biggest VC financing. Proteus Digital Health managed to add $120m to its coffers thanks to its technology that aims to connect devices with ingestible and wearable technologies using mobile and cloud computing.

While Proteus did not reveal its new investors, if previous rounds are to go by it could be a mixture of healthcare and software companies.

Top 10 rounds of 2014
Company Financing round Investment ($m)
NantWorks Series B 250.0
Proteus Digital Health Series G 120.0
Adaptive Biotechnologies Series D 100.0
Halt Medical Series E 92.8
Biocartis Series F 85.0
NantWorks Series undisclosed 75.0
Precision Therapeutics Series E 60.0
GC Aesthetics Series A 60.0
InSightec Series D 59.0
Oxford Nanopore Technologies Series G 59.0

Other big rounds of the year also focused on crossover technology between pharma and medtech.  Adaptive Biotechnologies, which operates in the immunosequencing space, saw sole investor Viking Global Investors sink $105m into its business. One of Adaptive’s technologies is an assay that could act as a predictive biomarker for response to treatment with cancer immunotherapies.

Viking might be hoping that Adaptive will become one of the medical device companies operating in or on the fringes of genomics, an area this is increasingly attractive to pharma companies developing immunotherapies.

Indeed, Precision Therapeutics has now renamed itself Helomics Corporation, a title that is sure to encourage those looking for genomic investments, if it decides to top up its funds beyond the $60m series E provided by HealthCare Royalty Partners.

Consolidation continues

Alongside a love of all things either gene or digital related, NantWork’s chunky financing highlights the marked difference between 2014 and 2013, which showed a 15% fall in the number of funding rounds to 345. This indicates that the trend towards medtech VCs making bigger, but fewer, late-stage investments is continuing.

Annual VC investments 
Financing date  Investment ($bn)  Financing count 
2014 3.89 345
2013  3.92 406
2012  3.68 387
2011  4.42 485
2010  4.37 416
2009  3.53 377
2008  3.07 285
2007  3.21 237

This phenomenon could have its roots in the remaining difficulties of funds to restock after investments, which has led to big syndicated financings. VCs also obviously need to make decent returns, and it is sensible strategy to place large sums of money into later rounds where market buoyancy and stock market conditions mean it is now easier than ever for companies to IPO.

For VC investors in the genomics or digital health space, hope of a takeout by big pharma either pre- or post-IPO is sure to be fueled by the recent spate of deals between what a few years ago would have seemed very unlikely bedfellows.

Earlier this month, Roche thought nothing of spending just over $1bn to acquire a controlling stake in Foundation Medicine, a company that sequences the genes of cancer patients.

Meanwhile, its subsidiary Genentech struck a deal worth up to $60m with 23andMe, not for the group’s low-cost DNA testing kits, but the sheer weight of data collected from its 800,000 customers, to help with target discovery.

Indeed, the activity in this space indicates that businesses involved in this previously fringe area could see more interest from VCs, and this could even trickle down to some of the smaller innovative genomic and digital healthcare companies, making 2015 another good year for the sector as a whole.

To contact the writer of this story email Lisa Urquhart in London at [email protected] or follow @LisaEPVantage on Twitter

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