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Trends in Healthcare Investments and Exits 2018

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In our annual Healthcare Investments and Exits report, SVB analyzed the fundraising, investment, M&A and IPO activity of private, venture-backed biopharma, medical device and diagnostic/tools companies.

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Trends in Healthcare Investments and Exits 2018

  1. 1. Trends in Healthcare Investments and Exits 2018 Investments and Fundraising Reach All-Time Highs, Focus Grows on Early-Stage M&A ANNUAL REPORT 2018 Follow @SVB_Financial Engage #SVBHealthcare
  2. 2. 2 Table of Contents 2017 Key Highlights 3 Healthcare Investments and Fundraising 5 Healthcare Big Exit M&A and IPOs 21 2018 Outlook 31 Glossary 32 About the Authors 33 Trends in Healthcare Investments and Exits 2018
  3. 3. Healthcare Investments and Fundraising Set Records in 2017 2017 Key Highlights: Investments 3 • U.S. healthcare venture fundraising set a record, reaching $9.1B – a 26 percent increase over 2016 – and surpassing the 2015 record of $7.5B. • Investments into venture-backed biopharma, medical device and diagnostics and tools (Dx/Tools) companies are also expected to break a record in 2017, increasing 31 percent over 2016 to reach $15.5B. • Spikes in Q1 and Q4 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 2017, 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 $1.8B in investments into Guardant Health, GRAIL and Human Longevity. Trends in Healthcare Investments and Exits 2018
  4. 4. Biopharma and Device M&As Focused on Early-Stage Companies 2017 Key Highlights: Exits 4 • Biopharma saw a wave of IPOs, beating 2016’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 36 percent of all exits in 2017. • Biopharma M&A continued to focus on early-stage companies, while IPOs shifted to later stage. • Crossover investors scaled back their biopharma investments from 2015 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 next- gen visualization/imaging companies. • PMA/De Novo 510(k) Device M&As have shown better returns and time to exit than iterative 510(k) exits; 2015 – 2017 returns now beat biopharma M&A upfront values and multiples. • Dx/Tools had no M&A exits in 2017 and only one IPO. Substantial private investment, however, permits these companies to continue their development. Trends in Healthcare Investments and Exits 2018
  5. 5. 5 Healthcare Investments and Fundraising: Healthcare Sectors Set Record Highs in 2017 Trends in Healthcare Investments and Exits 2018
  6. 6. 6 Healthcare Fundraising Reaches New Heights U.S. Healthcare Venture Fundraising*, 2009 – 2017 $5.2B $1.8B $3.7B $3.6B $3.9B $6.1B $7.5B $7.2B $9.1B 2009 2010 2011 2012 2013 2014 2015 2016 2017 *SVB estimates the dollars allocated to healthcare by all U.S. venture funds. Source: PitchBook and SVB proprietary data Healthcare venture funding hit a new high in 2017. The increase started in 2014 when fundraising jumped 50% over the previous year. This has led to a large pool of capital available to invest in venture-backed companies. 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. Over the past few years, traditional VCs scaled back medical device investments. This trend reversed in 2017. Looking ahead, we anticipate fundraising will continue to be strong, but will decline to the $6B- 7B range in 2018. HC VC $ Fundraised ($ BILLIONS) Trends in Healthcare Investments and Exits 2018
  7. 7. 7 Healthcare Investments Are Projected to Reach a Record of $15.5B in 2017, a 31% Increase over 2016 U.S. Biopharma and Device Investments and Deals, 2010 – 2017 *SVB estimated numbers for 2017. 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. $4.4B $4.4B $4.8B $5.2B $7.1B $10.4B $8.2B $10.5B476 469 498 559 595 641 546 548 0 100 200 300 400 500 600 700 $0 $2 $4 $6 $8 $10 $12 2010 2011 2012 2013 2014 2015 2016 2017* Pharma & Biotech ($B) Pharma & Biotech (# of Deals) $3.1B $3.9B $3.7B $4.0B $4.7B $4.2B $3.6B $5.0B 474 544 577 578 603 584 499 507 0 100 200 300 400 500 600 700 $0 $1 $2 $3 $4 $5 $6 2010 2011 2012 2013 2014 2015 2016 2017* HC Devices & Supplies ($B) HC Devices & Supplies (# of Deals) Biopharma investment is projected to hit a record in 2017, 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 Q4 2017. Cullinan Oncology, Arcus Biosciences and Allakos each raised over $100M. Device funding and deal levels were steady, although funding may be lower than shown because some Dx/Tools deals are counted in the device category. The device sector’s active M&A market and uncrowded investment space make it attractive for investors. As a result, we are seeing traditional venture investors return to this sector. BIOPHARMADEVICES Trends in Healthcare Investments and Exits 2018
  8. 8. 5 13 16 17 36 9 12 16 19 38 Anti-Infective Orphan/Rare Disease Neuro Platform Oncology 2016 2017 Oncology Platform Neuro Orphan/ Rare Anti- Infective 2016 2017 # of Investments 125 144 Total Series A Funding ($M) $2,334 $2,787 Corporate Investments (%) 26% 29% 8 Biopharma Series A Spikes in Q1 & Q4 Set A Record U.S. Series A* Biopharma Investments, 2016 – 2017 A B C $784M $540M $743M $267M $1,711M Investors making big bets on new technologies led biopharma Series A activity to record levels in 2017. [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 2017 median deal was $9M, but Q1 and Q4 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 $2M regardless of investor. Source: PitchBook and SVB proprietary data. 2016 Median Series A Funding by Quarter ($M) 2017 Median Series A Funding by Quarter ($M) 75th Quartile 25th Quartile Trends in Healthcare Investments and Exits 2018 $10.0M $6.3M $7.4M $7.5M $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 Q1 2016 Q2 2016 Q3 2016 Q4 2016 $18.4M $6.0M $5.7M $19.5M $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 Q1 2017 Q2 2017 Q3 2017 Q4 2017
  9. 9. 9 Investors Seek Early-Stage Biopharma Deals Most Active Biopharma Investors*, 2016 – 2017 As venture fundraising hit highs, healthcare-focused VCs continued their torrid pace of investing in biopharma. Median deal size in 2016 –2017 was $31M, slightly down from 2015 –2016’s median of $33M. 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**. *Most Active Biopharma Investors calculated as new (first-time) investments into companies in 2016 – 2017. **AREE, Inc. Earnings Press Release 9/30/17 Source: PitchBook, press releases and SVB proprietary data. # OF DEALS 8 9 10 11 12 13 14 15 16 17 18 19 22 23 26 Corporate Investors Trends in Healthcare Investments and Exits 2018
  10. 10. 8 9 15 16 27 70 3 5 1 3 3 6 3 4 4 6 5 10 Anti-Infective Auto-Immune Orphan/Rare Disease Neuro Platform Oncology Early Stage Late Stage Undesignated 10 Oncology, Platform Draw New Investor Activity Most Active Biopharma Investors* by Indication, 2016 – 2017 *Most Active Biopharma Investors by Indication defined as Top 42 venture and corporate investors calculated as new (first-time) investments into companies in 2016 – 2017. Early Stage is defined as Series A & B; Late Stage defined as Series C and later. Source: PitchBook and SVB proprietary data. 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. Oncology Platform Auto- Immune Orphan/ Rare Disease Anti- Infective Neuro $3,410M $1,421M $664M $734M $541M $649M # DEALS | $ MILLIONS Logos represent any $25M+ financing raised in that time period/indication. Trends in Healthcare Investments and Exits 2018
  11. 11. 11 Massachusetts and Northern CA See Majority of Activity New Biopharma Investments* by Geography, 2016 – 2017 *New biopharma investments defined as Top 42 venture and corporate investors calculated as new (first-time) investments into companies in 2016 – 2017. Source: PitchBook and SVB proprietary data. China 3 deals $179M United Kingdom 8 deals $257M Israel 4 deals $78M Canada 4 deals $353M Germany 6 deals $142M Northern CA 51 deals $2,118M Southern CA 22 deals $692M MA 72 deals $2,310M NY 11 deals $306M WA 7 deals $249M Top 5 U.S. Biopharma Top 5 OUS Biopharma Trends in Healthcare Investments and Exits 2018
  12. 12. 7 5 5 6 4 1 3 7 7 11 Ophthalmology Cardiovascular Neuro Orthopedic Non-Invasive Monitoring 2016 2017 $97M $63M $72M $50M $27M Non-Invasive Monitoring Orthopedic Neuro Cardiovascular Ophthalmology 2016 2017 # of Investments 59 59 Total Series A Funding ($M) $248 $342 Corporate Investments (%) 12% 20% Median Round Size ($M) $3.3 $3.9 Non-Invasive Monitoring Drives Device Series A U.S. Series A* Device Investments, 2016 – 2017 12 A B Cardiovascular Uro/Gyn Neuro [A]: Deal activity in 2017 matched 2016, but Series A funding increased nearly 40%. 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 2016 but shifted in 2017, with 64% of deals in other indications. Chart C details 2017 non-invasive monitoring deals by underlying indication. Respiratory Ambulatory Metabolic Ophthalmology 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. Trends in Healthcare Investments and Exits 2018 C
  13. 13. 3 4 5 7 8 13 Traditional VCs Increase Device Investments Most Active Device Investors*, 2016 – 2017 *Most Active Device Investors calculated as new (first-time) investments into companies in 2016 – 2017. Source: PitchBook and SVB proprietary data. Traditional venture investor activity in device rebounded in 2017. Nine firms had at least four deals in 2016 –2017, compared to only three firms in 2015–2016. In contrast to biopharma investors’ focus on early-stage deals, device investments by corporate investors were primarily in later-stage companies. Corporate Investors # OF DEALS KCK Group Trends in Healthcare Investments and Exits 2018
  14. 14. Incubators and niche corporate venture arms generated significant new interest in neuro, leading to a 2017 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. 1 4 2 5 4 5 7 9 5 3 0 3 1 3 1 4 5 3 1 1 1 5 1 6 ENT Drug Delivery Metabolic Vascular Access Non-Invasive Monitoring Orthopedic Neuro Cardiovascular Surgical Early Stage Late Stage Undesignated 14 Niche Investors Generate Major Interest in Neuro Most Active Device Investors by Indication*, 2016 – 2017 *Most Active Device Investors defined as Top 35 venture and corporate investors calculated as new (first-time) investments into companies in 2016 – 2017. Early Stage is defined as Series A & B; Late Stage defined as Series C and later. Source: PitchBook and SVB proprietary data. Surgical, Neuro and Non- Invasive Monitoring Vascular Access Trends: $163M $451M $276M $97M $117M $167M $197M $235M $192M Logos represent any $25M+ financing raised in that time period/subsector. # DEALS | $ MILLIONS Surgical DrugDelivery Metabolic Non-Invasive Monitoring ENT Orthopedic Cardiovascular VascularAccess Neuro Trends in Healthcare Investments and Exits 2018
  15. 15. California Dominates Device Deals New Device Investments* by Geography, 2016 – 2017 15 *New Device Investments defined as Top 35 venture and corporate investors based on new investments in 2016–2017. Source: PitchBook and SVB proprietary data. Northern CA 25 deals $709M Southern CA 6 deals $275M MN 7 deals $241M PA 5 deals $181M MA 10 deals $278M Israel 6 deals $63M France 3 deals $39M Switzerland 2 deals $74M Ireland 3 deals $55M Italy 2 deals $7M Top 5 U.S. Device Top 5 OUS Device Trends in Healthcare Investments and Exits 2018
  16. 16. 2016 2017 # of Investments 55 73 Total Series A Funding ($M) $516 $500 Corporate Investments (%) 18% 15% Median Round Size ($M) $5.3 $4.7 16 Investors Make Smaller Series A Bets in Dx/Tools U.S Series A* Dx/Tools Investments, 2016 – 2017 9 20 26 9 24 40 Dx Analytics Dx Test R&D Tool 2016 2017 $529M $347M $140M B [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 >$10M deals are AI-based bets in the Dx Tests and Dx Analytics subsectors. C *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. A Artificial Intelligence Synthetic Biology Point-of-Care Dx Tests Traditional R&D Tools Logos represent all >$10M Series A financings. Trends in Healthcare Investments and Exits 2018 s s
  17. 17. 3 4 5 6 9 17 Tech-Focused Investors Emerge as Dx/Tools Leaders Most Active Dx/Tools Investors*, 2016 – 2017 *Most Active Dx/Tools Investors calculated as new (first-time) investments into companies in 2016 – 2017. Source: PitchBook and SVB proprietary data. 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. # OF DEALS Corporate Investors Trends in Healthcare Investments and Exits 2018
  18. 18. 16 19 42 Dx Analytics Dx Test R&D Tool # DEALS | $ MILLIONS 18 Investors Focus on R&D Tools and Dx Tests Most Active Dx/Tools Investors* by Subsector, 2016 – 2017 *Most Active Dx/Tools Investors defined as Top 24 venture and corporate investors calculated as new (first- time) investments into companies in 2016 – 2017. Source: PitchBook and SVB proprietary data. $981M $2,021M $749M Overall, Dx/Tools fundraising increased 40%, reaching $2.8B in 2017. Investments in GRAIL and Guardant Health accounted for $1.6B, nearly 60% of the total. R&D Tools fundraising increased by 50% in 2017, led by four $25M+ financings in Series A companies. Two 1H deals accounted for the majority of Dx Tests’ 2017 investment total of $1.8B. Still, the subsector showed a median round size of $15M, 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. Logos represent any $25M+ financing raised in that time period/subsector. Trends in Healthcare Investments and Exits 2018 s s
  19. 19. $608M $179M $1,853M $537M $0.0M $400.0M $800.0M $1,200.0M $1,600.0M $2,000.0M 1H 2016 2H 2016 1H 2017 2H 2017 19 Seed/Series A Series B Series C/Later Oncology Liquid Biopsy Investments Surge in 2017 Investments in Liquid Biopsy and NGS, 2016 – 2017 NGS Fundraising Triples in 2017 TOTAL FINANCING ($M) Includes All Dx/Tools Liquid Biopsy and NGS Investments in 2016 – 2017. Source: PitchBook and SVB proprietary data. 2017 $2,094M 2016 $581M $200M ($500M) $360M ($540M) $1,212M ($1,312M) $322M ($569M) RAISED IN 2017 (TOTAL RAISED) 10 Other Companies 17 10 12 14 B Seed/Series A Series B Series C/Later Round Size Pre-Money Valuation $310M $48M $9M$13M $19M $58M A Explosion in NGS Valuations MEDIAN ROUND SIZE AND PRE-MONEY VALUATIONS (2016 – 2017) C [A]: 85% of liquid biopsy funding went to Guardant Health, GRAIL and Human Longevity. [B]: Investments into NGS deals increased by 3x in 2017, with activity concentrated in 1H. [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 Trends in Healthcare Investments and Exits 2018
  20. 20. Northern CA Remains Most Active Region for Dx/Tools Most Active Dx/Tools Investments* by Geography 2016 – 2017 20 Northern CA 30 deals $2,575M Southern CA 9 deals $362M UT 2 deals $79M *Most Active Dx/Tools Investments defined as Top 24 venture and corporate investors calculated as new (first- time) investments into companies in 2016 – 2017. Source: PitchBook and SVB proprietary data. MA 10 deals $461M WA 2 deals $44M Canada 1 deals $3M France 2 deals $3M China 1 deal $30M Italy 2 deals $6M Top 5 U.S. Dx/Tools Top 5 OUS Dx/Tools Trends in Healthcare Investments and Exits 2018
  21. 21. 21 Healthcare Big Exit M&A and IPOs: Biopharma and Device M&A Activity Are Focused on Early Stage Trends in Healthcare Investments and Exits 2018
  22. 22. $0M $5,000M $10,000M $15,000M $20,000M $25,000M $30,000M 2013 2014 2015 2016 2017 M&A Upfront M&A Milestones TBE* Pre-Money IPO 22 Biopharma IPOs Rise as M&A Activity Slows VC-backed Biopharma Exits, 2013 – 2017 Exit Values by Year $ MILLIONS B A C 34 66 42 28 31 12 14 22 20 14 2013 2014 2015 2016 2017 IPO M&A Top Exits by Indication 2013–2017 *Milestones TBE defined as M&A payments that have not yet been earned. Source: PitchBook, press releases and SVB proprietary data. $17.7B $21.3B $26.9B $26.5B $18.7B Biopharma saw a wave of IPOs, while M&A slowed. Record high pre-money IPO valuations helped drive activity. [A]: 2017 biopharma IPOs flourished while M&As declined. M&A activity was within the bounds of the past five year cycle, but below 2015 – 2016 highs. [B]: Overall exit values were down, but biopharma pre-money IPO values skyrocketed. Median pre-money IPO value was a record for this cycle. [C]: 62% of IPOs and 56% of M&As in 2013 – 2017 were clustered in five indications. Oncology led with four M&A deals in 2017, followed by orphan/rare (3), auto-immune (2) and platform (2). Trends in Healthcare Investments and Exits 2018 20 10 7 5 4 48 24 25 15 12 Oncology Neuro Orphan / Rare Anti-Infectives Ophthalmology M&A IPO
  23. 23. 23 Biopharma M&A Continues to Focus on Early Stage VC-backed Biopharma Big Exits by Stage*, 2013 – 2017 *Stage defined as last completed clinical trial in most advanced asset. Source: PitchBook, press releases and SVB proprietary data. Median Upfront($M) 213 225 200 200 171 Median Total Deal($M) 457 413 570 600 461 Median Years to Exit 5.6 4.0 4.2 5.9 3.5 The attractive IPO market in 2017 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 2017, 36% of the big exits were pre-clinical, compared to 25% for the 2013 – 2017 cycle. Buying early-stage companies allows big biopharma companies to replenish their pipelines. The five pre-clinical big exits in 2017 were acquired by large players Gilead, Merck, Celgene, Astellas and Bristol-Myers Squibb. [B]: The median time to exit hit a record of 3.5 years from close of Series A. Six deals exited within three years, generating a 4.2x median upfront multiple on private capital invested (median deal value $250M). These deals provided tremendous returns to investors in a very short time. 1 5 7 2 5 2 3 4 8 2 4 4 9 9 5 2 1 1 3 1 1 1 2013 2014 2015 2016 2017 $7.0B $8.0B $16.6B $21.2B $8.9B A # of Big Exits Phase III Phase II Phase I Pre-Clinical Commercial B Trends in Healthcare Investments and Exits 2018
  24. 24. 5 8 6 7 2 2016 46% Early Stage** 9 9 17 6 2015 44% Early Stage** 9 20 26 6 5 2014 44% Early Stage** 1 8 13 8 2 2013 32% Early Stage** 1 5 17 7 1 2017 19% Early Stage** 24 Biopharma IPOs Shift to Later-Stage Companies VC-backed Biopharma IPOs by Stage*, 2013 – 2017 *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. 2013 2014 2015 2016 2017 Oncology IPOs 11 12 8 5 12 Orphan/Rare IPOs 3 3 5 7 7 % of total biopharma IPOs 41% 19% 31% 43% 63% A surge in Q4 lifted the total number of IPOs to 31, meeting our projection of 28 to 32 for the year. Oncology and orphan/rare accounted for 63% 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 2017 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 2017 involved oncology and orphan/rare companies – compared to just 32% between 2013 and 2016. Oncology IPOs more than doubled over the 2016 total. B Phase IIIPhase IIPhase IPre-Clinical Commercial A Trends in Healthcare Investments and Exits 2018
  25. 25. IPO Pre-Money Value $ MILLIONS 25 Biopharma Pre-Money IPO Valuations Hit Stratosphere VC-backed IPOs by Pre-Money Valuation and Dollars Raised, 2013 – 2017 Source: PitchBook, press releases and SVB proprietary data. *Pre-money IPO valuation divided by venture capital invested. **Cormorant Asset Management, Deerfield Management, EcoR1 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 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 2013 2014 2015 2016 2017 $206M $141M $193M $140M $295M 2013 2014 2015 2016 2017 IPOs Raised Over $100M 8 12 13 1 12 % of IPOs Raised Over $100M 24% 18% 31% 4% 39% $0 $15 $30 $45 $60 $75 $90 $105 $120 $135 $150 $71M $62M $71M $52M $81M C [A]: Biopharma pre-money IPO valuations hit a record $295M in 2017, nearly 50% 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 15 healthcare crossover investors** participated in 10 of 12 of 2017’s $100M+ IPOs. We anticipate that IPOs will remain a viable financing option for crossover investments that have solid initial clinical data. A IPO Proceeds $ MILLIONS B 75th Quartile 25th Quartile IPO Median Pre-Money IPO Median Dollars Raised 2013 2014 2015 2016 2017 Trends in Healthcare Investments and Exits 2018
  26. 26. $0M $1,000M $2,000M $3,000M $4,000M $5,000M $6,000M $7,000M $8,000M 2013 2014 2015 2016 2017 M&A Upfront M&A Milestones TBE* Pre-Money IPO 26 Device M&A Activity is Stable VC-backed Device Big Exits, 2013 – 2017 Exit Values by Year $ MILLIONS B A C Top Exits by Indication 2013 – 2017 *Milestones TBE defined as M&A payments that have not yet been earned. Source: PitchBook, press releases and SVB proprietary data. $2.8B $6.4B $7.6B $4.9B $4.9B There were nine acquisitions in 2H 2017, each led by a different acquirer. [A]: Device IPO and M&A activity matched 2016, but each of the last two years saw fewer deals than 2014 and 2015. M&A activity far outpaced IPO activity for 2013 –2017. [B]: M&A in 2017 outperformed the 2013 – 2017 cycle. NeoTract’s $1.1B deal ($725M upfront) drove this value. [C]: Between 2013 – 2017, 76% of M&As and 45% of IPOs were clustered in five indications. Cardiovascular (3), drug delivery (2) and vascular (2) were the only indications that had multiple M&A big exits in 2017. Trends in Healthcare Investments and Exits 2018 2 10 11 3 3 12 18 19 13 14 2013 2014 2015 2016 2017 IPO M&A 19 12 11 8 8 1 4 4 3 1 Cardiovascular Vascular Surgical Ophthalmology Orthopedics M&A IPO
  27. 27. Median Upfront($M) 127 180 125 120 113 Median Total Deal($M) 175 185 141 380 275 Median Years to Exit 6.6 6.9 7.0 8.1 7.7 U.S. Commercial CE Mark Only Non-approved 1 1 4 2 3 3 1 5 4 3 8 15 10 7 8 2013 2014 2015 2016 2017 27 Device Shows Earlier Exits and Higher Valuations VC-backed Device by Stage*, 2013 – 2017 *Stage defined as last completed clinical trial in most advanced asset. Source: PitchBook, press releases and SVB proprietary data. [A]: Large companies (e.g. J&J, Boston Scientific) drove M&A deals in 2017, although longtime acquirer Medtronic remained absent. Large acquirers targeted innovative technologies, including those focused on minimally invasive solutions (5) and advanced imaging/visualization platforms (3). Since 2014, 37% of device M&A deals were CE Mark only or non-approved. These deals had a 4.5x median upfront multiple in 2017 – twice that of FDA- approved companies. [B]: Device deal structures shifted during this cycle. 2016 and 2017 deals had a larger proportion of milestones to be earned (60%) vs. 2013 to 2015 (19%). The device median time to exit from Series A declined in 2017 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. $2.3B $4.3B $3.7B $4.4B $4.6B A # of Big Exits Trends in Healthcare Investments and Exits 2018 B
  28. 28. 28 PMA/De Novo 510(k) Upfront Multiple and Value Exceed Biopharma Levels VC-backed Device M&A by Pathway, 2015 – 2017 Source: PitchBook, press releases and SVB proprietary data. Since 2015, PMA/De Novo acquisitions generated larger upfront multiples and quicker times to exit than iterative 510(k) exits. PMA/De Novo upfront values and multiples both now exceed those of biopharma’s. We anticipate healthcare-focused investors to place bigger bets in innovative, early-stage device companies. Prior to acquisition, iterative 510(k) pathway companies often require both FDA clearance and funding for commercializing and ramping revenue. These obstacles increase required capital and lengthen time to exit. In contrast, nearly all innovative PMA/De Novo acquisitions occur before approval by the FDA. 2015 – 2017 Stage at Exit Median Invested ($M) Median Upfront ($M) Median Upfront Multiple Median Total Deal ($M) Median Total Deal Multiple Median Time to Exit (Years) 510(k)M&As 25 Exits $50 $100 2.3x $110 3.4x 9.0 PMA/DeNovo 510(k)M&As 21 Exits $51 $225 4.3x $325 6.7x 5.5 BiopharmaM&As 56 Exits $37 $200 4.2x $557 11.7x 4.3 1 2 8 11 23 28 28 1 ≥ Phase IDevelopment StageCE Mark OnlyFDA-Approved < Phase I Trends in Healthcare Investments and Exits 2018
  29. 29. MeanYearstoIPO 10.9 6.5 9.4 N/A N/A 4.1 Mean Years to Big Exit 9.1 8.4 7.8 6.4 2.6 4.7 0 to 1X 1 to 2X 2 to 4X 4 to 7X 7 to 10X >10.1X IPO M&A 2013 2014 2015 2016 2017 29 No 2017 Dx/Tools Exits, but Opportunities Lie Ahead VC-backed Dx/Tools Exits, 2013 – 2017 Exit Values by Year $ BILLIONS B A C IPO/Exit Multiples* 2013 – 2017 $1.0B $2.8B $1.4B $1.5B No Exits [A]: Despite heavy investment in the Dx/Tools sector, exits proved elusive in 2017, 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 2013-2017. [C]: Large-multiple big exits (>7x) in 2013-2017 typically had short exit times and small amounts of invested capital (median investment of $10M). IPOs had lower multiples and longer times to exit, and most post-IPO companies underperformed. We anticipate big exits in the next few years, with tech giants making more investments and emerging as potential acquirers. Source: PitchBook, press releases and SVB proprietary data. *IPO multiple calculated as estimated pre-money valuation divided by private invested capital. Exit multiple calculated as upfront deal value divided by private invested capital. 4 7 5 1 3 10 8 5 2013 2014 2015 2016 2017 IPO M&A MedianUpfront($M) 350 133 164 225 N/A Median Total Deal ($M) 450 239 164 325 N/A Median Years to Exit 8.2 6.0 3.6 8.5 N/A R&D Tools Dx Analytics Dx Tests 6 9 2 2 1 7 5 4 5 2 Trends in Healthcare Investments and Exits 2018
  30. 30. 30 Despite a Pullback, Crossovers Remain Active Top 15 Crossover* Activity and Exits, 2013 – 2017 *Cormorant Asset Management, Deerfield Management, EcoR1 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. [A]: Crossover private investment peaked in 2015, and returned to normal activity in 2016 – 2017. Favorable market conditions drove quicker exits in 2013-2014 and 2017. Record time to exit in 2017 could drive strong crossover private investment in 2018. [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 2017. Fifty-one private companies in these indications make up a strong pipeline for future IPOs. Oncology had the most exits in 2017 and the largest pipeline, suggesting a major role in 2018 IPOs. 26 7 16 9 7 23 17 2 6 3 7 31 64 25 35 3 7 5 4 4 4 4 4 6 5 Top 15 Crossover Private InvestmentsA Most Active Biopharma Indications and Exits B 2013 2014 2015 2016 2017 TotalInvestments 14 42 74 39 47 IPO / M&A 9 / 2 20 / 5 40 / 6 6 / 1 8 / 0 Months/Exit** 7.4 6.6 9.0 9.8 3.3 Dx/Tools Medical Device Biopharma Oncology Platform Orphan/Rare Neuro Ophthalmology ExitPercent 53% 29% 89% 60% 70% IPO / M&A 23 / 3 7 / 0 14 / 2 7 / 2 6 / 1 Months/Exit** 8.2 9.0 9.1 4.0 8.2 Still Active Total Exits Trends in Healthcare Investments and Exits 2018
  31. 31. 2018 Outlook 31 • Annual healthcare venture fundraising will decline to $6B - 7B, as a number of larger firms closed new funds in 2017. • 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 32 IPOs. There were 31 IPOs in 2017. • Due to a steady M&A market and quick exits in PMA/De Novo 510(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 2018 will dramatically decline, down 25 percent from 2017, 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 2017, we anticipate a few exits in R&D tools companies. Tech giants may make move from investing to acquiring promising Dx Analytics companies. Trends in Healthcare Investments and Exits 2018
  32. 32. 32 Glossary Big Exits Big Exits defined as private, venture-backed merger and acquisition transactions in which the upfront payment is $75 million or more for biopharma deals and $50 million or more for device and Dx/Tools deals. Initial Public Offering IPO defined as a venture-backed company raising IPO proceeds of $25 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. Corporate Investor Corporate investor defined as both venture and parent company investment into venture-backed companies 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. Trends in Healthcare Investments and Exits 2018
  33. 33. Trends in Healthcare Investments and Exits 2018 33 About the Authors AsaManagingDirector,JonathanNorrisspearheadsstrategicrelationshipswithmanyhealthcareventurecapitalfirmsandalsooversees businessdevelopmenteffortsforbankingandlendingopportunities.Inaddition,hehelpsSVBCapitalthroughsourcingandadvisingon limitedpartnershipallocationsanddirectinvestments. Norrisspeaksatmajorinvestorandindustryconferencesandauthorswidelycitedanalysesofhealthcareventurecapitaltrends.Hehas morethan17yearsofbankingexperienceworkingwithhealthcarecompaniesandventurecapitalfirms.Norrisearnedabachelor’s degreeinbusinessadministrationfromtheUniversityofCalifornia,Riverside,andajurisdoctoratefromSantaClaraUniversity. Jonathan Norris Managing Director Silicon Valley Bank jnorris@svb.com CaitlinTolmanisaSeniorAssociatewithSVB’sLifeScienceandHealthcareteam.Afive-yearveteranoftheteam,sheprovides marketresearchandtargetedanalysesofhistoricandcurrentinvestmenttrendswithinthelifescienceandhealthcareventure capitalindustry.TolmanworkstostrengthenanddeepenrelationshipstobuildtheSVBnetworkandoffermeaningful connectionsforbothVCfirmsandSVBclients.Herpassionforinnovationisevidentintheworkshedoeseverydaytoidentify emergingindustryandmarkettrends. AftergraduatingwithhonorsfromtheUniversityofMassachusetts,Amherst,TolmanjoinedSVBasaclientserviceadvisorin 2007.ShethenheldaroleinSVB’sGlobalSalesandSolutionsgroupandhelpedtodrivevariousproductandservicesolutions, particularlyincashmanagementandpayments. Caitlin Tolman Senior Associate Silicon Valley Bank ctolman@svb.com ThomasJoyceisaLifeScienceSeniorAssociatebasedinBoston,whereheperformsstrategicadvisoryserviceswithafocuson Dx/Toolsmergersandacquisitions. JoycewaspreviouslyaSeniorAssociateinSVB’scommercialbank,focusedonfinancialanalysis,portfoliomanagement,business developmentandunderwritingofcomplexcredittransactionsforlifescienceandhealthcarecompanies.PriortoSVB,Joycewas responsiblefororiginatingandanalyzingprivateequitytransactionsforKamylonCapital,aprincipalinvestmentfirm.Joyceearned abachelor’sdegreeinfinancewithaminorineconomicsfromSuffolkUniversity’shonorsprogram,graduatingsummacumlaude andasamemberoftheBetaGammaSigmaHonorsSociety. Thomas Joyce Senior Associate SVB Securities tjoyce@svb.com 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. Ritish Patnaik Healthcare Consultant rp2616@stanford.edu
  34. 34. This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Silicon Valley Bank is registered in England and Wales at Alphabeta, 14-18 Finsbury Square, London EC2A 1BR, UK under No. FC029579. Silicon Valley Bank is authorised and regulated by the California Department of Business Oversight and the United States Federal Reserve Bank; authorised by the Prudential Regulation Authority with number 577295; and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. ©2018 SVB Financial Group. All rights reserved. SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq: SIVB). CompID-1110 About Silicon Valley Bank For more than 30 years, Silicon Valley Bank has helped innovative companies and their investors move bold ideas forward, fast. SVB provides targeted financial services and expertise through its offices in innovation centers around the world. With commercial, international and private banking services, SVB helps address the unique needs of innovators.

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