RSM US Insight: Life sciences investments strong in US, but not record breaking this year

What’s in store for life sciences investing in 2021? Coming off a record high in 2020 and with many funds recently raised, fundraising will likely decline in 2021 to be in line with 2019’s $10.7 billion pace, according to Jonathan Norris, managing director, Silicon Valley Bank, during an RSM state of the market webcast. He indicated with fresh capital and a continued open initial public offering window, however, investments into biopharma and other life sciences companies should continue at a healthy pace this year. Here are some additional webcast highlights

1. Robust IPOs for biopharma
For biopharma companies strong investment is expected for both Series A and later-stage mezzanine financings this year, slightly below 2020’s record numbers. IPOs should be robust in this sector, especially through mid-2021. According to Norris and SVB reporting, 50 to 60 IPOs are predicted for the year and $1 billion-plus in private mergers and acquisitions activity is expected as large cap pharma M&A deals will compete against going public. Will valuations hold through this active period and will special purpose acquisition companies compete with IPOs? Time will tell.

2. Healthtech is tops
Investments within the healthtech sector, at every stage, will remain strong with alternative care leading. As virtual and hybrid care became mainstream during the pandemic, it’s expected that we will see more companies in other healthtech subsectors expand into the alternative care space. Ten to 15 IPOs are expected in the next 18 months, with provider operations leading in the number of IPOs, but alternative care likely showing the best post-IPO performance.

3. Big deals for medical diagnostics
The medical diagnostic and tools sector will likely see continued record investment. Deal numbers could fall but dollars invested should be similar to 2020, according to Norris. He indicates an even split between IPOs and large private M&A transactions, as big-deal IPO and M&A optionality has arrived for companies in this sector.

4. Eyes on later-stage medtech
During the COVID-19 pandemic, medical device companies were hit particularly hard by delays in clinical trials and commercialization, as both elective and emergency procedures were reduced. While 2020 M&A was down for this sector, IPO activity increased. Total exit values were dominated by IPO market caps. This year Series A should bounce back as more medtech-focused firms raise new funds, but most investment will continue to focus on later-stage, mezzanine deals contemplating near-term IPOs. Public launches and private M&A will remain stable in this sector.

5. CFOs on going public
Joining Norris on the webcast, along with other RSM professionals, were CFOs, Terry-Ann Burrell of Beam Therapeutics, and Adam Laponis of Eargo. They shared a variety of experiences and insights related to fundraising, crossover rounds, setting valuations and their own outlooks on 2021’s investment climate. In addition, they provided their going-public thoughts.

Burrell indicated that given the pace with which company valuations have moved, companies should be thinking about preparing for Section 404(a) and 404(b) certifications in tandem with planning for an IPO.  She commented that it is a massive amount of work along with the stress of getting filings together in fast-moving companies. 

Laponis agreed, adding that in the run up to an IPO, companies can’t build relationships with the buy side early enough and noted the importance of having strong relationships with the audit team, both leading up to and post IPO. He also stressed knowing where you want to test and learn as a business, and getting buy-in from the board of directors before the IPO process.