Medtech bleeds corporate venture cash
Overall venture investment in the sector remains steady, but the big strategics back off.
Perhaps large healthcare companies have other priorities. Perhaps traditional venture firms have so much money that they are not needed. Whatever the reason, corporate VCs are pulling back from medtech.
In the first three quarters of this year only 15% of the total venture cash received by medtech companies came from rounds with corporate VC participation. This proportion has shrunk fast; two years ago the figure sat at 30%.
The good news for the sector is that investment in private device makers seems to be holding up nicely, at least at the half-year point, as this Vantage analysis found. Traditional VCs are very well funded at the moment, and since the Covid pandemic highlighted the importance of medical technology they have been happy to back medtechs.
So why are the strategics pulling back? The almost total shutdown of the IPO market, which has meant fewer crossover rounds – the big deals that precede a flotation – cannot be the explanation because corporates are not crossover investors. Of the 10 largest-ever VC deals with corporate participation, only one, Cue Health’s $235m round in May 2021, could be regarded as a crossover.
In any case, IPOs of small device companies have never played a huge role in the medtech industry's lifecycle.
Hammered
Covid is perhaps responsible for some of this trend. The parent companies of some of the most prolific corporate investors were hammered by the pandemic. Johnson & Johnson, Boston Scientific and Medtronic were hit hard by lockdowns, though they still feature in the top five most prolific corporate medtech backers of the past five years.
| Most prolific corporate VCs in medtech, Jan 2017 - Sep 22 | |||
|---|---|---|---|
| Investor | No of rounds | Value ($m) | Average size ($m) |
| JJDC (Johnson & Johnson) | 36 | 2,512 | 70 |
| Illumina | 15 | 1,314 | 88 |
| Boston Scientific | 15 | 352 | 24 |
| Novartis | 13 | 945 | 73 |
| Medtronic | 12 | 386 | 32 |
| Most prolific corporate VCs in medtech, Mar 2020 - Sep 2022 | |||
| Investor | No of rounds | Value ($m) | Average size ($m) |
| JJDC (Johnson & Johnson) | 11 | 795 | 72 |
| Illumina | 6 | 818 | 136 |
| Novo Nordisk | 5 | 349 | 70 |
| Novartis | 4 | 662 | 166 |
| Roche | 2 | 570 | 285 |
| Source: Evaluate Medtech. | |||
Neither Boston nor Medtronic have made any venture investments since March 2020, however. Diagnostics specialists Roche and Illumina, both of which sold many millions of dollars-worth of Covid tests, have played more of a role since early 2020. In both cases their interest as investors has skewed heavily in favour of liquid biopsy developers, with Grail, Freenome and Delfi Diagnostics all benefiting.
Overall, it is not the number of corporate rounds that are shrinking. Of the 102 VC deals closed by medtechs between January and September this year, 14 counted at least one corporate in their syndicate. This is very nearly the same proportion as in the past two years.
If it is not the number of corporate rounds that is declining, then, it must be the size. So far this year the rounds with the investment arm of one of the big strategics on board averaged under $50m in size, for the first time since 2019. While rounds with corporate participation have always been, on average, bigger than those without, now this only just holds true. Perhaps next year it will not be true at all.
