As published in Forbes, July 9, 2018
By Matthew Herper, Forbes Staff
The indictment of Theranos founder Elizabeth Holmes, and the barrage of shocking details about her company unearthed by John Carreyrou in his best-selling chronicle of the Theranos saga, Bad Blood, could give nightmares to people who invest in biotech firms that have not yet listed their shares on public markets. But if fundraising in healthcare this year is any indication, that's not happening.
The torrid pace of healthcare dealmaking in the first six months of 2018 beats any year in a decade, according to an analysis conducted by Pitchbook for Forbes. So far in 2018, healthcare startups have raised $15 billion from venture capitalists, Pitchbook says, 70% more than in the same period last year. The number of companies splitting that cash pile has dropped, from 855 in the first six months of 2017 to 779 in the first half of 2018, meaning investors have chosen to make bigger bets in a smaller number of companies.
Investments by venture capitalists in healthcare firms did slow slightly in June, according to the Pitchbook analysis. Healthcare firms raised $1.86 billion in June 2018, down 3% from June 2017 and the third-biggest June fundraising in a decade. (In June 2015, healthcare firms raised $2.1 billion.) The number of companies raising money has plummeted 50%, from 171 in at the 2015 peak to just 85 last month. June was also down sequentially from May, when healthcare firms raised $2.37 billion.
Despite the excitement over digital health startups and the continuing worries about drug pricing, biotechnology companies dominated June fundraisings. Humacyte raised $150 million at a $789 million post-value thanks to an investment by Fresenius, which will commercialize the company's blood vessel implant, and Kaleido Biosciences raised $101 million at a $576 million post-value in a round in which Invus Group, Rock Springs Capital, Flagship Pioneering, Fidelity Management & Research, and Alexandria Real Estate Equities participated. In health technology, Emulate raised $36 million at a $200 million post-value led by Founders Fund and SciFi VC, and Cedar raised $36 million at a $116 million post-value led by Thrive Capital, Lakestar, and Founders Fund.
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The biggest deals so far this year? The $300 million raised in May by Grail, which aims to develop a blood test to detect cancer (valuation: $3.2 billion), followed by the $240 million raised by cardiac imaging firm Heartflow in February at a $1.5 billion valuation. Also in February, Moderna, which seeks to create drugs using messenger RNA, raised $500 million at a $7 billion valuation; it raised another $125 million from Merck at an undisclosed valuation in May.
Theranos hasn't been the only mishap among high-value healthcare startups during the recent private market froth. Outcome Health, a company that put screens with drug advertisements in doctors' offices, raised $510 million at a $5.5 billion valuation last June. The company was subsequently sued by investors (the suit was later settled) and several large pharmaceutical clients took their business elsewhere. Forbes no longer uses this valuation to calculate the net worth of Outcome founder Rishi Shah, who owned 80% of the company, which is why he did not appear on our 2018 list of the world's billionaires.
Intarcia Therapeutics, a developer of drug implants, raised $615 million at a $4.1 billion valuation last August. Intarcia's diabetes drug was rejected by the Food and Drug Administration last September, leading to staff cuts and stopped programs in February. That's not a scandal, but it's also not good for investors holding shares in the company.
For venture capitalists continuing to play in this market, Forbes has a recommendation: Make Carreyrou's Theranos book your beach read this summer, to make sure you know what not to do.