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Trends in Healthcare Investments and Exits 2016

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  • Trends in HealthcareInvestments and Exits 2016

    Investor Confidence and Innovation Drive

    Healthcare Venture to New Heights

    Written by

    Jonathan Norris

    Managing Director

    Silicon Valley Bank

    M 650.575.1377

    jnorris@svb.com

    @jonnysvb

    Paul Schuber

    Valuations Associate

    SVB Analytics

    Caitlin Tolman

    Senior Associate

    Silicon Valley Bank

  • 2

    Table of Contents

    3 Overview

    4 Healthcare Venture Fundraising and Investment: A Year of Record Highs

    16 Crossover Activity Peaks in Q3, Slows in Q4

    19 Healthcare Venture Exits: M&A Climate Improves as IPOs Slow

    34 2016 Outlook

    35 Glossary

    36 Authors

  • 3

    2015: Another Banner Year for Healthcare

    At the start of 2015, it was hard to imagine that we would have another year as successful as 2014. And yet, by most measures, 2015 came very close.

    Led by a blockbuster M&A deal at the end of the year, potential returns to investors in 2015 rocketed to a new

    high. By SVB estimates, three years of strong performance has generated more than $55 billion in potential value

    back to investors.

    With record investments in biopharma, 2015 saw more capital invested in healthcare VC-backed companies

    than in any other year.

    Non-traditional crossover investors increased activity, participating in large mezzanine rounds to take advantage

    of the biopharma IPO market.

    While IPOs dipped versus 2014, the public markets continued to be receptive to healthcare companies. Also,

    many companies going public in the past two years had very successful public follow-on fundings.

    Biopharma M&A activity increased, culminating in AstraZenecas $4 billion payment to Acerta in

    December 2015.

    Higher returns, greater investor confidence and faster investment cycles led some funds to raise again within two

    years of their previous fund.

    Such a speedy fundraising cycle means venture healthcare has fresh capital to support existing investments and

    create new ones, and create a critical cash cushion as IPOs decline and crossover investors pull back.

    Despite the slowdown in Q4, the healthcare industry is poised for a strong 2016, though activity likely will not match 2015.

  • 4

    Healthcare Venture Fundraising and Investment: A Year of Record Highs

  • 5

    0%

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    18%

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    2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3Q'15

    $ B

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    sU.S. Healthcare Venture Investment Hits 15-Year High

    Healthcare as Percentage of Total Venture Investment

    Venture investments in healthcare were projected to reach $9.4 billion in 2015, the highest level since 2000.

    Biopharma venture investments reached a record $7 billion, and device remained steady at $2.4 billion.

    Total VC Dollars

    ($B)$105 $41 $22 $20 $23 $23 $28 $32 $30 $20 $23 $30 $28 $30 $51 $59

    Biopharma 4% 9% 15% 19% 19% 17% 18% 19% 17% 19% 17% 16% 15% 15% 12% 12%

    Dev ice 2% 5% 8% 8% 8% 9% 10% 11% 12% 13% 11% 10% 9% 7% 5% 4%

    $105

    Total VC$ % Biopharma % Device

    *Projected total for 2015

    Source: PricewaterhouseCoopers, Thomson Reuters and SVB proprietary data

    Thomson Reuters data includes life science and dx/tools in biopharma and device categories.

    2015*

  • 6

    Strong Biopharma M&A and IPO Market Drive Investment and Fundraising

    U.S. Healthcare: Venture Dollars Invested and Raised Fundraising and investment each grew by 10 percent in the past year.

    SVB analysis found crossover investors

    deployed more than $1.2 billion in

    venture-backed pre-IPO rounds, as these investors rushed to get a foot in

    the door ahead of the IPOs. However,

    after peaking in Q3, crossover

    investment activity significantly declined in Q4.

    While not included in this fundraising data, corporate venture investment

    continued to add critical capital to

    venture-backed life science companies.

    The strong levels of 2015 fundraising

    should provide ample capital to support

    new companies over the next few years, which will prove critical as IPOs slow

    and crossover activity decreases.

    Declining capital flow ratio in the past

    five years is a positive development,

    indicating that fundraising is keeping a

    closer pace with investments.

    Capital Flow

    Ratio127% 353% 211% 182% 169% 140% 139%

    *Projected total for 2015

    Source: PricewaterhouseCoopers, Thomson Reuters and SVB proprietary data

    $9.4B

    $6.8B

    0

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    9

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    2009 2010 2011 2012 2013 2014 2015 Proj

    $ B

    illi

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    s

    HC VC $ Invested into Companies HC VC $ Fundraised Gap in Funding

    2015*

  • 7

    46 45 4517

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    Biopharma Series A Investment Dollars Surge while Device and Dx/Tools Struggle

    Source: VentureSource, PitchBook, CB Insights and SVB proprietary data

    Biopharma Series A investment

    amounts skyrocketed, fueled by considerably larger deal sizes: 36

    percent of deals raised at least$20 million.

    Quick paths to exit drew crossover

    investors into Biopharma Series A. Corporate venture also remained

    active, participating in more than a quarter of all Series A deals.

    Declining investor interest in device

    led to a drop in new company formations, and the majority of

    Series A rounds were less than $5 million.

    Dx/tools faced challenges due to

    commercial reimbursement issues, regulatory uncertainty and difficulty

    protecting IP.

    7659

    8197

    0

    40

    80

    1202012 2013 2014 2015

    # o

    f D

    ea

    ls

    Total Series A ($M) $776 $1,102 $823 $1,871

    CVC Deals % / # 22% / 17 29% / 17 27% / 22 29% / 28

    BIOPHARMA

    35 34 39 22

    0

    40

    80

    120

    # o

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    Total Series A ($M) $212 $215 $327 $96

    CVC Deals % / # 9% / 3 18% / 6 15% / 6 32% / 7

    DEVICE

    Total Series A ($M) $331 $257 $354 $165

    CVC Deals % / # 4% / 2 11% / 5 9% / 4 24% / 4

    DX/TOOLS

    U.S. Company Formation: Deals and Investments in Series A

  • 8

    Venture Capital and Corporate VentureAccelerate Investing Pace

    *Most active defined as top 60 investors based on new investments

    Source: CB Insights, press releases, PitchBook and SVB proprietary data

    Of the top venture capital investors,

    three (OrbiMed, Sofinnova, Venrock) joined crossover syndicate partners

    in at least 50 percent of their 2015 new deals.

    Top biopharma investor OrbiMed

    Advisors raised a $950M fund in late 2015 and is likely to remain

    very active.

    WuXi Venture Fund separated from its corporate parent and in Q4 raised

    a traditional venture fund.

    GlaxoSmithKline appears on the CVC list twice: For its corporate

    venture arm (SR One) and for its early-stage parent company

    investments, many of which are with Avalon Ventures.

    Top VC Biopharma

    INVESTOR DEALS TOTAL $

    OrbiMed Advisors 30 $1,300M

    Novo 20 $736M

    NEA 19 $713M

    Versant Ventures 16 $376M

    Sofinnova Ventures 15 $742M

    Fidelity Biosciences 12 $586M

    Venrock 11 $705M

    ARCH Venture Partners

    11 $630M

    MPM Capital 10 $236M

    Atlas Venture 10 $143M

    Top CVC Biopharma

    INVESTOR DEALS TOTAL $

    JJDC 18 $235M

    Novartis Venture Funds

    13 $321M

    SR One 11 $305M

    Pfizer Venture Investments

    9 $221M

    Celgene 8 $260M

    WuXi Venture Fund 8 $204M

    Roche Venture Fund 7 $198M

    Lilly Ventures 7 $106M

    Partners HealthCare Innovation

    7 $104M

    GlaxoSmithKline 6 $92M

    Most Active* New VC Investors in Biopharma 2014-15:

    Venture Capital and Corporate Venture Capital

  • 9

    Oncology Leads New Biopharma Investments

    Oncology72 deals

    $2,492M

    Platform31 deals

    $871M

    Anti-Infectives28 deals

    $610M

    CNS25 deals

    $743M

    Rare/Orphan20 deals

    $664M

    Metabolic13 deals

    $354M

    Auto-Immune8 deals

    $211M

    Respiratory7 deals

    $248M

    Ophthalmology8 deals

    $303M

    GI5 deals

    $125M

    Cardio5 deals

    $111M

    Most Active* New VC Investments in Biopharma by Indication 2014-15

    Oncology raised nearly 3X the dollar amounts of the next most active indication.

    Anti-infectives jumped from #9 to #3 in total deals in one year, while rare/orphan and metabolic deals doubled. CNS,

    ophthalmology and oncology posted the largest average deal sizes.

    *Most active defined as top 60 investors based on new investments

    Source: CB Insights, press releases, PitchBook and SVB proprietary data

  • 10

    New Biopharma Hubs Emerge Outside the U.S.

    Most Active* New VC Investments in Biopharma by Geography 2014-15

    NorthernCA

    48 deals $1,763M

    Southern CA

    26 deals $592M

    Canada

    8 deals $218M

    Top 5 U.S. Biopharma Top 5 OUS Biopharma

    United Kingdom

    11 deals 410M

    France

    7 deals $98M

    China

    6 deals $48M

    Switzerland

    7 deals $175M

    MA

    46 deals $1,588M

    TX

    10 deals $376M

    PA

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