Trends in Healthcare Investments and Exits 2018

Transcription

1 Trends in Healthcare Investments and Exits 208 Investments and Fundraising Reach All-Time Highs, Focus Grows on Early-Stage M&A ANNUAL REPORT 208 Engage #SVBHealthcare

2 Table of Contents 207 Key Highlights Healthcare Investments and Fundraising Healthcare Big Exit M&A and IPOs Outlook Glossary 2 About the Authors 2

3 207 Key Highlights: Investments Healthcare Investments and Fundraising Set Records in 207 U.S. healthcare venture fundraising set a record, reaching $9.B a 26 percent increase over 206 and surpassing the 20 record of $7.B. Investments into venture-backed biopharma, medical device and diagnostics and tools (Dx/Tools) companies are also expected to break a record in 207, increasing percent over 206 to reach $.B. Spikes in Q and Q biopharma Series A deals propelled the sector to another record year, posting $2.8B in investments. Biopharma investment centered on oncology and platform companies. Platform companies piqued investor interest, as their technologies showed promise for multiple exits across different indications. Non-invasive monitoring, especially in cardiovascular, uro/gyn and neuro, took off in medical device Series A investments. Neuro investment surged in 207, with significant interest from niche investors and incubators. Artificial intelligence spurred tech investor interest in Dx/Tools, leading to record investment. Liquid biopsy investment exploded, punctuated by $.8B in investments into Guardant Health, GRAIL and Human Longevity.

4 207 Key Highlights: Exits Biopharma and Device M&As Focused on Early-Stage Companies Biopharma saw a wave of IPOs, beating 206 s total, while big exit M&A activity slowed. IPOs had a significant upswing in pre-money valuations. Oncology deals led M&A activity and dominated IPOs, accounting for 6 percent of all exits in 207. Biopharma M&A continued to focus on early-stage companies, while IPOs shifted to later stage. Crossover investors scaled back their biopharma investments from 20 but continue to drive their existing portfolio companies to IPO. Device M&A activity continued at a steady pace, with a focus on minimally invasive devices and nextgen visualization/imaging companies. PMA/De Novo 0(k) Device M&As have shown better returns and time to exit than iterative 0(k) exits; returns now beat biopharma M&A upfront values and multiples. Dx/Tools had no M&A exits in 207 and only one IPO. Substantial private investment, however, permits these companies to continue their development.

5 Healthcare Investments and Fundraising: Healthcare Sectors Set Record Highs in 207

6 Healthcare Fundraising Reaches New Heights U.S. Healthcare Venture Fundraising*, HC VC $ Fundraised ($ BILLIONS) $7.B $7.2B $9.B Healthcare venture funding hit a new high in 207. The increase started in 20 when fundraising jumped 0% over the previous year. This has led to a large pool of capital available to invest in venture-backed companies. $.2B $.7B $.6B $.9B $6.B Venture healthcare investors have recently focused on biopharma and Dx/Tools. As Dx/Tools companies integrate computational methods such as artificial intelligence, we see tech investors, many new to healthcare, starting to invest in these deals. $.8B Over the past few years, traditional VCs scaled back medical device investments. This trend reversed in 207. Looking ahead, we anticipate fundraising will continue to be strong, but will decline to the $6B- 7B range in 208. *SVB estimates the dollars allocated to healthcare by all U.S. venture funds. Source: PitchBook and SVB proprietary data 6

7 Healthcare Investments Are Projected to Reach a Record of $.B in 207, a % Increase over 206 U.S. Biopharma and Device Investments and Deals, BIOPHARMA $2 $0 $8 $6 $ $2 Pharma & Biotech ($B) $.B $.B $.8B 9 $.2B Pharma & Biotech (# of Deals) $0.B $8.2B $7.B 8 $0.B Biopharma investment is projected to hit a record in 207, while the number of deals remained stable. As a result, average deal size rose. In particular, we saw a large increase in mega-rounds in Q 207. Cullinan Oncology, Arcus Biosciences and Allakos each raised over $00M. $ * 0 DEVICES $6 $ $ $ $2 $ $0 HC Devices & Supplies ($B) HC Devices & Supplies (# of Deals) 7 $.9B $.0B $.7B $.B $.7B $.2B $.0B $.6B * Device funding and deal levels were steady, although funding may be lower than shown because some Dx/Tools deals are counted in the device category. The device sector s active M&A market and uncrowded investment space make it attractive for investors. As a result, we are seeing traditional venture investors return to this sector. *SVB estimated numbers for 207. Note: PitchBook data does not contain a separate Dx/Tools category. Most Dx/Tools deals appear to be contained within the biopharma, device and services categories. Source: PitchBook, NVCA. 7

8 Biopharma Series A Spikes in Q & Q Set A Record U.S. Series A* Biopharma Investments, A Oncology Oncology # of Investments 2 Total Series A Funding ($M) $2, $2,787 Corporate Investments (%) 26% 29% B 8 $,7M C 7th Quartile 206 Median Series A Funding by Quarter ($M) $0.0 $0.0 $0.0 $20.0 $0.0 $0.0 $0.0M $6.M $7.M $7.M Q 206 Q2 206 Q 206 Q 206 Platform 7 9 $78M 2th Quartile 207 Median Series A Funding by Quarter ($M) $0.0 Neuro 6 6 $0M $0.0 $0.0 Orphan/ Rare Orphan/Rare Disease Anti- Infective Anti-Infective 9 2 $7M $267M $20.0 $0.0 $0.0 $9.M $8.M $6.0M $.7M Q 207 Q2 207 Q 207 Q 207 Investors making big bets on new technologies led biopharma Series A activity to record levels in 207. [A]: Corporate investors often joined these early-stage syndicates, but they were least active in orphan/rare and neuro companies (20% and 22%). [B] Oncology deals and dollars at least double the next closest indication. [C]: The 207 median deal was $9M, but Q and Q median deals had values twice that size. *Series A investments include all U.S.-based first-round institutional or corporate venture investment, and all first-round investments equal to or greater than $2M regardless of investor. Source: PitchBook and SVB proprietary data. 8

9 Investors Seek Early-Stage Biopharma Deals Most Active Biopharma Investors*, # OF DEALS As venture fundraising hit highs, healthcare-focused VCs continued their torrid pace of investing in biopharma. Median deal size in was $M, slightly down from s median of $M. Corporate investors are active, making mostly early-stage bets. Those investing in the largest Series A deals include GSK s SR One, Pfizer, Celgene and GV. Alexandria led biopharma deals, though investments averaged under $2M per deal**. Corporate Investors *Most Active Biopharma Investors calculated as new (first-time) investments into companies in **AREE, Inc. Earnings Press Release 9/0/7 Source: PitchBook, press releases and SVB proprietary data. 9

10 Oncology, Platform Draw New Investor Activity Most Active Biopharma Investors* by Indication, # DEALS $ MILLIONS Early Stage Late Stage Undesignated Oncology $,0M Platform 27 $,2M Neuro 6 6 $66M Orphan/ Orphan/Rare Disease Rare Disease Auto- Auto-Immune Immune 9 $7M $M Logos represent any $2M+ financing raised in that time period/indication. Anti- Anti-Infective Infective 8 $69M We saw sustained investment in oncology, resulting from big wins by early-stage oncology investors. The number of oncology exits is double that of any other indication over the last five years. Investors see multiple-exit potential for platform technologies by leveraging their potential use in different clinical indications. Orphan/rare s decrease in deal volume could be due to waning crossover investor interest. *Most Active Biopharma Investors by Indication defined as Top 2 venture and corporate investors calculated as new (first-time) investments into companies in Early Stage is defined as Series A & B; Late Stage defined as Series C and later. Source: PitchBook and SVB proprietary data. 0

11 Massachusetts and Northern CA See Majority of Activity New Biopharma Investments* by Geography, Northern CA Top U.S. Biopharma WA deals $2,8M Southern CA 7 deals $29M 22 deals $692M NY MA 72 deals $2,0M deals $06M Top OUS Biopharma Canada deals $M United Kingdom 8 deals $27M Germany 6 deals $2M Israel deals $78M China deals $79M *New biopharma investments defined as Top 2 venture and corporate investors calculated as new (first-time) investments into companies in Source: PitchBook and SVB proprietary data.

12 Non-Invasive Monitoring Drives Device Series A U.S. Series A* Device Investments, A C Cardiovascular # of Investments 9 9 Total Series A Funding ($M) $28 $2 Corporate Investments (%) 2% 20% Median Round Size ($M) $. $.9 B Uro/Gyn Neuro Non-Invasive Monitoring $97M Orthopedic Orthopedic 6 7 $6M Neuro 7 $72M Respiratory Ambulatory Metabolic Ophthalmology Cardiovascular $0M Ophthalmology 7 $27M [A]: Deal activity in 207 matched 206, but Series A funding increased nearly 0%. Corporate venture increased by two-thirds. [B]: Non-invasive monitoring, orthopedic and neuro companies made up 68% of all Series A funding over the past two years. [C]: Non-invasive monitoring deals focused almost exclusively on cardiovascular in 206 but shifted in 207, with 6% of deals in other indications. Chart C details 207 non-invasive monitoring deals by underlying indication. Series A Investments includes all U.S. based first-round investments from institutional or corporate venture investment, and all first-round investments equal to or greater than $2M regardless of investor. Source: PitchBook and SVB proprietary data. 2

13 Traditional VCs Increase Device Investments Most Active Device Investors*, # OF DEALS 8 7 KCK Group Corporate Investors Traditional venture investor activity in device rebounded in 207. Nine firms had at least four deals in , compared to only three firms in In contrast to biopharma investors focus on early-stage deals, device investments by corporate investors were primarily in later-stage companies. *Most Active Device Investors calculated as new (first-time) investments into companies in Source: PitchBook and SVB proprietary data.

14 Niche Investors Generate Major Interest in Neuro Most Active Device Investors by Indication*, # DEALS $ MILLIONS Early Stage Late Stage Undesignated Surgical 6 $6M Cardiovascular 9 $M Neuro 7 $276M Orthopedic $92M Non-Invasive Non-Invasive Monitoring Vascular Access $7M $97M Logos represent any $2M+ financing raised in that time period/subsector. Metabolic 2 $67M Drug Delivery ENT 0 $2M $97M Trends: Surgical, Neuro and Non- Invasive Monitoring Vascular Access Incubators and niche corporate venture arms generated significant new interest in neuro, leading to a 207 investment surge. Non-invasive monitoring companies continue to spark investor interest at smaller deal sizes. These companies have smaller development costs and less stringent regulatory requirements. We anticipate that drug delivery investment will continue to increase, as therapeutic treatments move outside the hospital. *Most Active Device Investors defined as Top venture and corporate investors calculated as new (first-time) investments into companies in Early Stage is defined as Series A & B; Late Stage defined as Series C and later. Source: PitchBook and SVB proprietary data.

15 California Dominates Device Deals New Device Investments* by Geography, Top U.S. Device Top OUS Device Israel 6 deals $6M Northern CA 2 deals $709M Southern CA MN 7 deals $2M PA MA 0 deals $278M deals $8M France deals $9M Switzerland 2 deals $7M Ireland 6 deals $27M deals $M Italy 2 deals $7M *New Device Investments defined as Top venture and corporate investors based on new investments in Source: PitchBook and SVB proprietary data.

16 Investors Make Smaller Series A Bets in Dx/Tools U.S Series A* Dx/Tools Investments, A C Artificial Intelligence # of Investments 7 Total Series A Funding ($M) $6 $00 Corporate Investments (%) 8% % Median Round Size ($M) $. $.7 B R&D Tools $29M Traditional R&D Tools Synthetic Biology Dx Tests Dx Analytics $0M $7M Logos represent all >$0M Series A financings. Point-of-Care Dx Tests [A]: While Series A deals increased, total funding declined, indicating that investors are making smaller Dx/Tools bets. [B]: R&D Tools companies are generating major investor interest. This is likely due to a lack of regulatory and reimbursement hurdles facing other Dx/Tools subsectors. [C]: While many Series A financings are R&D Tools, the majority of >$0M deals are AI-based bets in the Dx Tests and Dx Analytics subsectors. *Series A Investments includes all U.S. based first-round investments from institutional or corporate venture investment, and all first-round investments equal to or greater than $2M regardless on investor. Source: PitchBook and SVB proprietary data. 6

17 Tech-Focused Investors Emerge as Dx/Tools Leaders Most Active Dx/Tools Investors*, # OF DEALS 9 6 Corporate Investors Tech-focused investors, including AME Cloud Ventures, Data Collective and Khosla Ventures, increased their participation in Dx/Tools investments. We anticipate that tech-focused investors will continue to apply their software expertise in Dx Analytics deals that leverage AI. While tech corporate venture participation has increased, these investors focus on a small set of deals most compatible with their own technologies. *Most Active Dx/Tools Investors calculated as new (first-time) investments into companies in Source: PitchBook and SVB proprietary data. 7

18 Investors Focus on R&D Tools and Dx Tests Most Active Dx/Tools Investors* by Subsector, # DEALS $ MILLIONS R&D Tools 2 $98M Dx Tests 9 $2,02M Dx Analytics 6 $79M Logos represent any $2M+ financing raised in that time period/subsector. Overall, Dx/Tools fundraising increased 0%, reaching $2.8B in 207. Investments in GRAIL and Guardant Health accounted for $.6B, nearly 60% of the total. R&D Tools fundraising increased by 0% in 207, led by four $2M+ financings in Series A companies. Two H deals accounted for the majority of Dx Tests 207 investment total of $.8B. Still, the subsector showed a median round size of $M, higher than R&D Tools and Dx Analytics. In stark contrast to R&D Tools, active investors avoided funding Series A Dx Analytics companies. Instead, these investors focused on later-stage companies that had more clinical validation. *Most Active Dx/Tools Investors defined as Top 2 venture and corporate investors calculated as new (firsttime) investments into companies in Source: PitchBook and SVB proprietary data. 8

19 Oncology Liquid Biopsy Investments Surge in 207 Investments in Liquid Biopsy and NGS, A 206 $8M 207 $2,09M RAISED IN 207 (TOTAL RAISED) $,22M ($,2M) $60M ($0M) $200M ($00M) $22M ($69M) 0 Other Companies [A]: 8% of liquid biopsy funding went to Guardant Health, GRAIL and Human Longevity. [B]: Investments into NGS deals increased by x in 207, with activity concentrated in H. [C]: Late-stage NGS deals saw huge pre-money valuations. For a deeper look at this trend, read SVB s Tech Advancements in Dx/Tools Draw Powerful New Players B TOTAL FINANCING ($M) $2,000.0M $,600.0M NGS Fundraising Triples in 207 $,8M C Explosion in NGS Valuations MEDIAN ROUND SIZE AND PRE-MONEY VALUATIONS ( ) $0M $,200.0M $800.0M $00.0M $0.0M $608M 2 $7M 7 $79M 0 H 206 2H 206 H 207 2H 207 $8M $M $9M Seed/Series A Series B Series C/Later Round Size $8M $9M Seed/Series A Series B Series C/Later Pre-Money Valuation Includes All Dx/Tools Liquid Biopsy and NGS Investments in Source: PitchBook and SVB proprietary data. 9

20 Northern CA Remains Most Active Region for Dx/Tools Most Active Dx/Tools Investments* by Geography Top U.S. Dx/Tools WA 2 deals $M Top OUS Dx/Tools Northern CA 0 deals $2,7M Southern CA 9 deals $62M UT 2 deals $79M MA 0 deals $6M Canada deals $M France 2 deals $M Italy 2 deals $6M China deal $0M *Most Active Dx/Tools Investments defined as Top 2 venture and corporate investors calculated as new (firsttime) investments into companies in Source: PitchBook and SVB proprietary data. 20

21 Healthcare Big Exit M&A and IPOs: Biopharma and Device M&A Activity Are Focused on Early Stage 2

22 Biopharma IPOs Rise as M&A Activity Slows VC-backed Biopharma Exits, A IPO M&A Biopharma saw a wave of IPOs, while M&A slowed. Record high pre-money IPO valuations helped drive activity [A]: 207 biopharma IPOs flourished while M&As declined. M&A activity was within the bounds of the past five year cycle, but below highs. [B]: Overall exit values were down, but biopharma pre-money IPO values skyrocketed. Median pre-money IPO value was a record for this cycle. [C]: 62% of IPOs and 6% of M&As in were clustered in five indications. Oncology led with four M&A deals in 207, followed by orphan/rare (), auto-immune (2) and platform (2). B $0,000M $2,000M $20,000M $,000M $0,000M Exit Values by Year $ MILLIONS $,000M $0M M&A Upfront M&A Milestones TBE* Pre-Money IPO $7.7B $2.B $26.9B $26.B $8.7B C Top Exits by Indication M&A IPO Oncology Neuro Orphan / Rare Anti-Infectives Ophthalmology *Milestones TBE defined as M&A payments that have not yet been earned. Source: PitchBook, press releases and SVB proprietary data. 22

23 Biopharma M&A Continues to Focus on Early Stage VC-backed Biopharma Big Exits by Stage*, A # of Big Exits B $7.0B $6.6B $2.2B $8.0B 9 9 $8.9B 2 Commercial Phase III 8 2 Phase II 7 Phase I 2 Pre-Clinical Median Upfront ($M) Median Total Deal ($M) Median Years to Exit The attractive IPO market in 207 meant fewer M&A deals. Large private venture rounds raised in the past few years made it difficult for companies to accept early-exit offers while also maintaining robust multiples. [A]: Half of biopharma big exit M&As were early stage (pre-clinical and phase I). For 207, 6% of the big exits were pre-clinical, compared to 2% for the cycle. Buying early-stage companies allows big biopharma companies to replenish their pipelines. The five pre-clinical big exits in 207 were acquired by large players Gilead, Merck, Celgene, Astellas and Bristol-Myers Squibb. [B]: The median time to exit hit a record of. years from close of Series A. Six deals exited within three years, generating a.2x median upfront multiple on private capital invested (median deal value $20M). These deals provided tremendous returns to investors in a very short time. *Stage defined as last completed clinical trial in most advanced asset. Source: PitchBook, press releases and SVB proprietary data. 2

24 Biopharma IPOs Shift to Later-Stage Companies VC-backed Biopharma IPOs by Stage*, A % Early Stage** % Early Stage** % Early Stage** % Early Stage** % Early Stage** Pre-Clinical Phase I Phase II Phase III Commercial A surge in Q lifted the total number of IPOs to, meeting our projection of 28 to 2 for the year. Oncology and orphan/rare accounted for 6% of the biopharma IPOs. [A]: Many biopharma IPOs in this five-year cycle were early stage (pre-clinical and phase I). We saw a dramatic shift in 207 from early-stage to phase II and III companies going public. This signals a public market focus on actionable clinical data, and less on the promise of early-stage technologies. [B]: More than half of biopharma IPOs in 207 involved oncology and orphan/rare companies compared to just 2% between 20 and 206. Oncology IPOs more than doubled over the 206 total. B Oncology IPOs Orphan/Rare IPOs 7 7 % of total biopharma IPOs % 9% % % 6% *Stage defined as current clinical trial in most advanced asset. **Early Stage defined as most advanced asset in Pre-Clinical and/or Phase I trials. Source: PitchBook, press releases and SVB proprietary data. 2

25 Biopharma Pre-Money IPO Valuations Hit Stratosphere VC-backed IPOs by Pre-Money Valuation and Dollars Raised, A $00 $0 $00 $0 $00 $20 $200 $0 $00 $0 $0 IPO Pre-Money Value $ MILLIONS $206M IPO Median Pre-Money $M $9M $0M $29M 7th Quartile 2th Quartile B $0 $ $20 $0 $90 $7 $60 $ $0 $ $0 IPO Proceeds $ MILLIONS IPO Median Dollars Raised $7M $62M $7M $2M $8M C [A]: Biopharma pre-money IPO valuations hit a record $29M in 207, nearly 0% higher than the previous record. [B]: IPOs also had a median invested capital multiple* of 2.8x, resulting in up-round IPOs for many of these companies. [C]: Crossover investors led the strong IPO class: the top healthcare crossover investors** participated in 0 of 2 of 207 s $00M+ IPOs. We anticipate that IPOs will remain a viable financing option for crossover investments that have solid initial clinical data IPOs Raised Over $00M % of IPOs Raised Over $00M 2% 8% % % 9% *Pre-money IPO valuation divided by venture capital invested. **Cormorant Asset Management, Deerfield Management, EcoR Capital, Fidelity Investments, Foresite Capital Management, Jennison Associates, Partner Fund Management, Perceptive Advisors, RA Capital Management, Redmile Group, Rock Springs Capital, Sectoral Asset Management, Viking Global Investors, Wellington Management, Woodford Investment Management Source: PitchBook, press releases and SVB proprietary data. 2

26 Device M&A Activity is Stable VC-backed Device Big Exits, A IPO M&A There were nine acquisitions in 2H 207, each led by a different acquirer [A]: Device IPO and M&A activity matched 206, but each of the last two years saw fewer deals than 20 and 20. M&A activity far outpaced IPO activity for [B]: M&A in 207 outperformed the cycle. NeoTract s $.B deal ($72M upfront) drove this value. [C]: Between , 76% of M&As and % of IPOs were clustered in five indications. Cardiovascular (), drug delivery (2) and vascular (2) were the only indications that had multiple M&A big exits in 207. B Exit Values by Year $ MILLIONS M&A Upfront M&A Milestones TBE* Pre-Money IPO $8,000M $7.6B $7,000M $6.B $6,000M $,000M $.9B $.9B $,000M $,000M $2.8B $2,000M $,000M $0M C Top Exits by Indication M&A IPO Cardiovascular Vascular Surgical Ophthalmology Orthopedics *Milestones TBE defined as M&A payments that have not yet been earned. Source: PitchBook, press releases and SVB proprietary data. 26

27 Device Shows Earlier Exits and Higher Valuations VC-backed Device by Stage*, A # of Big Exits B $.7B $.B $.6B 0 $.B $2.B U.S. Commercial CE Mark Only Non-approved Median Upfront ($M) Median Total Deal ($M) Median Years to Exit [A]: Large companies (e.g. J&J, Boston Scientific) drove M&A deals in 207, although longtime acquirer Medtronic remained absent. Large acquirers targeted innovative technologies, including those focused on minimally invasive solutions () and advanced imaging/visualization platforms (). Since 20, 7% of device M&A deals were CE Mark only or non-approved. These deals had a.x median upfront multiple in 207 twice that of FDAapproved companies. [B]: Device deal structures shifted during this cycle. 206 and 207 deals had a larger proportion of milestones to be earned (60%) vs. 20 to 20 (9%). The device median time to exit from Series A declined in 207 but still the time exceed the five year trend. If the number of non-fda approved deals continues to rise, we anticipate time to exit to decrease. *Stage defined as last completed clinical trial in most advanced asset. Source: PitchBook, press releases and SVB proprietary data. 27

28 PMA/De Novo 0(k) Upfront Multiple and Value Exceed Biopharma Levels VC-backed Device M&A by Pathway, Stage at Exit Median Invested ($M) Median Upfront ($M) Median Upfront Multiple Median Total Deal ($M) Median Total Deal Multiple Median Time to Exit (Years) 0(k) M&As 2 Exits 2 $0 $00 2.x $0.x 9.0 PMA/De Novo 0(k) M&As 2 Exits Biopharma M&As 6 Exits $ $22.x $2 6.7x. $7 $200.2x $7.7x. FDA-Approved CE Mark Only Development Stage Phase I < Phase I Since 20, PMA/De Novo acquisitions generated larger upfront multiples and quicker times to exit than iterative 0(k) exits. PMA/De Novo upfront values and multiples both now exceed those of biopharma s. We anticipate healthcare-focused investors to place bigger bets in innovative, early-stage device companies. Prior to acquisition, iterative 0(k) pathway companies often require both FDA clearance and funding for commercializing and ramping revenue. These obstacles increase required capital and lengthen time to exit. In contrast, nearly all innovative PMA/De Novo acquisitions occur before approval by the FDA. Source: PitchBook, press releases and SVB proprietary data. 28

29 No 207 Dx/Tools Exits, but Opportunities Lie Ahead VC-backed Dx/Tools Exits, A IPO M&A [A]: Despite heavy investment in the Dx/Tools sector, exits proved elusive in 207, with only a single IPO. [B]: Companies in the R&D Tools space largely dominated big exits, accounting for 62% of M&A activity in [C]: Large-multiple big exits (>7x) in typically had short exit times and small amounts of invested capital (median investment of $0M). IPOs had lower multiples and longer times to exit, and most post-ipo companies underperformed. We anticipate big exits in the next few years, with tech giants making more investments and emerging as potential acquirers. B Exit Values by Year $ BILLIONS $2.8B $.B C IPO/Exit Multiples* IPO M&A 9 R&D Tools Dx Analytics Dx Tests $.0B $.B No Exits Median Upfront ($M) N/A Median Total Deal ($M) N/A Median Years to Exit N/A Mean Years to IPO N/A N/A. Mean Years to Big Exit to X to 2X 2 to X to 7X 7 to 0X >0.X *IPO multiple calculated as estimated pre-money valuation divided by private invested capital. Exit multiple calculated as upfront deal value divided by private invested capital. Source: PitchBook, press releases and SVB proprietary data. 29

30 Despite a Pullback, Crossovers Remain Active Top Crossover* Activity and Exits, A Top Crossover Private Investments Dx/Tools B Most Active Biopharma Indications and Exits Still Active Medical Device Biopharma Total Exits Total Investments IPO / M&A 9 / 2 20 / 0 / 6 6 / 8 / 0 Months/Exit** Oncology Platform Orphan/Rare Neuro Ophthalmology Exit Percent % 29% 89% 60% 70% IPO / M&A 2 / 7 / 0 / 2 7 / 2 6 / Months/Exit** [A]: Crossover private investment peaked in 20, and returned to normal activity in Favorable market conditions drove quicker exits in and 207. Record time to exit in 207 could drive strong crossover private investment in 208. [B]: With the highest exit rate, orphan/rare bets have paid off for crossover investors. However, there are limited future exits unless crossovers reinvest in this indication. There were only two new orphan/rare private crossover investments in 207. Fifty-one private companies in these indications make up a strong pipeline for future IPOs. Oncology had the most exits in 207 and the largest pipeline, suggesting a major role in 208 IPOs. *Cormorant Asset Management, Deerfield Management, EcoR Capital, Fidelity Investments, Foresite Capital Management, Jennison Associates, Partner Fund Management, Perceptive Advisors, RA Capital Management, Redmile Group, Rock Springs Capital, Sectoral Asset Management, Viking Global Investors, Wellington Management, Woodford Investment Management **Average months to exit from last crossover round of financing Source: PitchBook, press releases and SVB proprietary data. 0

31 208 Outlook Annual healthcare venture fundraising will decline to $6B - 7B, as a number of larger firms closed new funds in 207. Biopharma investors will likely slow their deal pace. Biopharma M&A deals will reach 20-plus big exits based on available acquirer cash and the need to replenish pipelines. A market driven by a steady pipeline of crossover investor-backed oncology companies should again achieve 28 to 2 IPOs. There were IPOs in 207. Due to a steady M&A market and quick exits in PMA/De Novo 0(k) companies, investments in medical device will increase. Traditional venture investors will lead this upswing. Early stage device M&A will continue. Neuro and drug delivery companies may join cardiovascular companies to spur the next flurry of early-stage device acquisitions. Dx/Tools investments in 208 will dramatically decline, down 2 percent from 207, although the number of deals is expected to stay steady. We anticipate more investments in the Dx Analytics subsector as companies develop AI-assisted technologies. Increasingly, these companies will receive backing by tech-focused investors. We will also see R&D Tools companies spin off Dx Test and Dx Analytics companies, as their research technologies develop into clinically relevant approaches. Liquid biopsy investments will slow, as current companies will look to validate their technologies. Despite no Dx/Tools M&A activity in 207, we anticipate a few exits in R&D tools companies. Tech giants may make move from investing to acquiring promising Dx Analytics companies.

32 Glossary Big Exits Big Exits defined as private, venture-backed merger and acquisition transactions in which the upfront payment is $7 million or more for biopharma deals and $0 million or more for device and Dx/Tools deals. Initial Public Offering IPO defined as a venture-backed company raising IPO proceeds of $2 million or more. Deal Descriptions Structured Deal defined as a pay-for-performance acquisition where some of the deal value is paid upfront when the deal closes, but also contains additional value based on milestones that must be achieved before it is realized. All-in Deal defined as an acquisition where the full deal value is paid on deal close. Upfront Payments defined as initial proceeds from an acquisition paid upon the close of a structured deal; it does not include milestones. Milestones to be Earned defined as proceeds from an acquisition that are paid once predetermined milestones are met. Total Deal Value defined as the full value of the acquisition, including any milestones to be earned. Time to Exit defined as the time from the close of a company s first institutional round of financing to the exit. Regulatory Non-approved defined as a device company that has no regulatory approval for its product. CE Mark Only defined as a device company that has CE Mark approval but has not received FDA approval. CE Mark is a European Union designation that is typically less difficult to obtain than FDA approval, and the approval process often has a faster timeline. U.S. Commercial defined as a device company that has received FDA approval of its product and usually is in commercial stage. Series A Series A defined as all first-round institutional or corporate venture investment, and all first-round investments equal to or greater than $2M regardless of investor. Indication Definitions Neurology( (Neuro) defined as CNS, pain and psychology companies. Non-Invasive Monitoring defined as medical data collection through sensors and other technology. Dx Tests defined as proprietary Yes/No diagnostic tests. Dx Analytics defined as actionable data analytics to help determine/direct treatment. R&D Tools defined as research equipment/services for biopharma and academia. Corporate Investor Corporate investor defined as both venture and parent company investment into venture-backed companies 2

33 About the Authors Jonathan Norris Managing Director Silicon Valley Bank Thomas Joyce Senior Associate SVB Securities Caitlin Tolman Senior Associate Silicon Valley Bank As a Managing Director, Jonathan Norris spearheads strategic relationships with many healthcare venture capital firms and also oversees business development efforts for banking and lending opportunities. In addition, he helps SVB Capital through sourcing and advising on limited partnership allocations and direct investments. Norris speaks at major investor and industry conferences and authors widely cited analyses of healthcare venture capital trends. He has more than 7 years of banking experience working with healthcare companies and venture capital firms. Norris earned a bachelor s degree in business administration from the University of California, Riverside, and a juris doctorate from Santa Clara University. Thomas Joyce is a Life Science Senior Associate based in Boston, where he performs strategic advisory services with a focus on Dx/Tools mergers and acquisitions. Joyce was previously a Senior Associate in SVB s commercial bank, focused on financial analysis, portfolio management, business development and underwriting of complex credit transactions for life science and healthcare companies. Prior to SVB, Joyce was responsible for originating and analyzing private equity transactions for KamylonCapital, a principal investment firm. Joyce earned a bachelor s degree in finance with a minor in economics from Suffolk University s honors program, graduating summa cum laude and as a member of the Beta Gamma Sigma Honors Society. Caitlin Tolman is a Senior Associate with SVB s Life Science and Healthcare team. A five-year veteran of the team, she provides market research and targeted analyses of historic and current investment trends within the life science and healthcare venture capital industry. Tolman works to strengthen and deepen relationships to build the SVB network and offer meaningful connections for both VC firms and SVB clients. Her passion for innovation is evident in the work she does every day to identify emerging industry and market trends. After graduating with honors from the University of Massachusetts, Amherst, Tolman joined SVB as a client service advisor in She then held a role in SVB s Global Sales and Solutions group and helped to drive various product and service solutions, particularly in cash management and payments. Ritish Patnaik Healthcare Consultant rp266@stanford.edu As a Healthcare Investments Consultant, Ritish Patnaik helped developed SVB s Dx/Tools classification system, which led to SVB s Tech Advancements in Dx/Tools Draw Powerful New Players Report. In addition, he helped analyze the final data set, create graphs and put together takeaways for the investment trends presented in this report. Patnaik is pursuing a Ph.D. in Bioengineering at Stanford University, where he is creating a multi-omic liver cancer test via magnetically tagged liquid biopsy. Patnaik earned a bachelor s degree in Biomedical Engineering at Columbia University.

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