The Rebound of Healthcare Mega-Round Activity
Written by Andrew Davis
With Contributions by Gregory Benning and Crystal Hsu
Overview
2024 has seen a significant resurgence in mega-round venture financings (venture deals > $100M) from 2023’s slowdown. Over 90 private healthcare companies have raised mega-rounds YTD, with >85% supporting biopharma companies.
2024 mega-rounds have exceeded 2023 both in deal frequency and total capital invested. In fact, not only has mega-round activity YTD surpassed 2023, the percentage of healthcare venture financings that are mega-rounds has also increased. Approximately 26% of all healthcare venture financings YTD have been mega-rounds, a near 10% increase from 2022 and 2023. Deal frequency has remained relatively consistent over the year, with total capital invested peaking in Q2.
Increased activity in 2024 has been driven by favorable macroeconomic trends and growing cash reserves for specialist investors. Back Bay believes that this financing activity is creating companies well-capitalized through their next valuation inflection point, serving as a promising sign for future therapeutic efficacy data and new drug approvals, and is a leading indicator for future IPO/M&A activity.
Biopharma has led mega-round activity, with investors favoring oncology, inflammation & immunology (I&I), and platform technologies, along with companies in preclinical development.
Biopharma continues to be the focus of many healthcare investors, attracting the highest number of mega-rounds by a wide margin in comparison to other healthcare verticals such as medical devices, diagnostics/tools, and healthcare services. Within biopharma, ~50% of mega-round deal frequency supported companies within oncology and I&I.
Although oncology and I&I have seen the highest deal frequency and capital invested, some of the largest private financings were driven by platform-specific companies that are non-therapeutic area specific. In fact, the average mega-round deal size YTD is $172M; however, platform companies saw an average deal size of $258M. Within platform companies, AI drug discovery technologies continue to garner interest from specialist investors. For example, Xaira, an end-to-end, AI-integrated drug discovery company backed by ARCH Venture Partners and Foresite Capital, came out of stealth mode with a $1B funding round, the largest healthcare mega-round YTD. Another indication that saw some of the largest check-sizes has been metabolic diseases with an average check size of $253M, demonstrating that the large size of the obesity market has investors eager to deploy their capital. Highlighted obesity deals include Kailera Therapeutics’ $400M Series A, along with Metsera’s $290M Series A in April and $215M Series B in November.
Within biopharma, ~40% of the capital deployed has been for companies in the preclinical stage. This is unsurprising as Series A and B rounds have accounted for approximately two-thirds of the total frequency of healthcare mega-rounds YTD, with most companies citing funding future first-in-human clinical studies as the primary use of proceeds.
Investors backing these large financings were commonly crossover investors, indicating a potential increase in future IPO activity.
Out of the 163 lead investors that have taken part in the 91 mega-round financings YTD, 58% were crossover investors. Some of the most active crossover investors by deal frequency include RA Capital, who led ten mega-rounds, along with TCGX and Novo Holdings who both led six each.
Most biopharma IPOs YTD have consisted of companies in Phase 2 or later stages of development. However, within these IPOs, the companies with Phase 3 assets have seen much stronger post-IPO performance in comparison to those with Phase 2 or earlier assets. Companies with lead assets in Phase 3 (N = 4), have seen a 2% share price increase YTD, while companies with lead assets in Phase 1 and Phase 2 (N = 19) declined 19%.
Interestingly, of the biopharma companies that raised mega-rounds, 36% of them were in late-clinical stages (Phase 2 and onwards). In prior years, these late-stage companies would have been excellent public market candidates; however, an inactive public market and the possibility of having to reset valuation if these companies had raised rounds during the 2020/2021 boom has resulted in these companies pursuing private financings over public. By raising these mega-rounds, these companies are enabled to have enough cash to progress through proof-of-concept development onto pivotal trials, an important inflection point that can better support an IPO.
Thus, not only does this narrative illustrate the potential drivers of the recent influx of mega-rounds, but it also highlights the potential for near-term IPO activity once these companies further de-risk their assets and the public healthcare market becomes more supportive towards pre-commercial companies.
Outlook
The strength in mega-round activity, growing specialist cash reserves, and an improving macroeconomic backdrop are all positive indicators for a more robust life sciences ecosystem that should fuel both more clinical and investment successes. As we look into 2025, we expect a continuation of heightened mega-round activity, as the alignment of interest between specialist investors and companies remains strong and the broader market outlook seems to be increasingly more favorable.
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Investment Banking
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Investment Banking