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,Trends in HealthcareInvestments andExits 2018Investments and FundraisingReachAll-TimeHighs, Focus GrowsonEarly-StageM&AANNUAL REPORT 2018,Follow SVB_Financial,Engage #SVBHealthcare,2,Table of Contents,2017 Key HighlightsHealthcare Investments and FundraisingHealthcare Big Exit M&A and IPOs2018 OutlookGlossaryAbout the Authors,3521313233,Trendsin HealthcareInvestmentsand Exits2018,3,2017 Key Highlights: InvestmentsHealthcare Investments and Fundraising Set Records in 2017 U.S. healthcare venture fundraising set a record, reaching $9.1B a 26 percent increase over 2016 andsurpassing 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 $2.8Bin investments. Biopharma investment centered on oncology and platform companies. Platform companies piquedinvestor 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 deviceSeries 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 andHuman Longevity.,Trendsin HealthcareInvestmentsand Exits2018,4,2017 Key Highlights: ExitsBiopharma and Device M&As Focused on Early-Stage Companies Biopharma saw a wave of IPOs, beating 2016s total, while big exit M&A activity slowed. IPOs had asignificant 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 theirexisting 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.,Trendsin HealthcareInvestmentsand Exits2018,5,Healthcare Investments and Fundraising:Healthcare Sectors Set RecordHighs in 2017,Trendsin HealthcareInvestmentsand Exits2018,6,Healthcare Fundraising Reaches New HeightsU.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. venturefunds.Source:PitchBook and SVB proprietary data,Healthcare venture funding hit anew high in 2017. The increasestarted in 2014 when fundraisingjumped 50% over the previousyear. This has led to a large pool ofcapital available to invest inventure-backed companies.,Venture healthcare investors haverecently focused on biopharmaand Dx/Tools. As Dx/Toolscompanies integratecomputational methods such asartificial intelligence, we see techinvestors, many new to healthcare,starting to invest in these deals.,Over the past few years,traditional VCs scaled backmedical device investments. Thistrend reversed in 2017.,Looking ahead, we anticipatefundraising will continue to bestrong, but will decline to the $6B-7B range in 2018.,HC VC $ Fundraised($ BILLIONS),Trendsin HealthcareInvestmentsand Exits2018,BIOPHARMA,DEVICES,476,469,$4.4B,$4.4B,546,$3.7B,584,507,$5.0B,7,Healthcare Investments Are Projected to Reach aRecord of $15.5B in 2017, a 31% Increase over 2016U.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 dealsappear to be contained within the biopharma, deviceand servicescategories.Source:PitchBook, NVCA.,559$5.2B,548$10.5B,0,700600500400300200100,$0,$12$10$8$6$4$2,2010,2011,2012,2013,2014,2015,2016,2017*,Pharma & Biotech ($B)498$4.8B,Pharma & Biotech (# of Deals)641595$10.4B$8.2B$7.1B,578$4.0B,7006005004003002001000,$6$5$4$3$2$1$0,2010,2011,2012,2013,2014,2015,2016,2017*,HC Devices & Supplies ($B)577544474$3.9B$3.1B,HC Devices & Supplies (# of Deals)603499$4.7B$4.2B$3.6B,Biopharma investment is projectedto hit a record in 2017, while thenumber of deals remained stable.As a result, average deal size rose.In particular, we saw a largeincrease in mega-rounds in Q42017. Cullinan Oncology, ArcusBiosciences and Allakos eachraised over $100M.,Device funding and deal levels weresteady, although funding may belower than shown because someDx/Tools deals are counted in thedevice category. The device sectorsactive M&A market and uncrowdedinvestment space make it attractivefor investors. As a result, we areseeing traditional venture investorsreturn to this sector.,Trendsin HealthcareInvestmentsand Exits2018,Orphan/,Rare,Anti-,Infective,1716,1916,38,Orphan/Rare DiseaseAnti-Infective,201636,2017,Oncology,PlatformNeuro,8,Biopharma Series A Spikes in Q1 & Q4 Set A RecordU.S. Series A* Biopharma Investments, 2016 2017,A 2016 2017# of Investments 125 144Total Series A Funding ($M) $2,334 $2,787Corporate Investments (%) 26% 29%,B,$784M$540M,13 12 $743M5 9 $267M,$1,711M,Investors making big bets on new technologiesled biopharma Series A activity to record levels in 2017.A: Corporate investors often joined these early-stagesyndicates, 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 ventureinvestment,and all first-round investments equal to or greater than $2M regardless of investor.Source:PitchBook and SVB proprietary data.,75thQuartile,25thQuartile,Trendsin HealthcareInvestmentsand Exits2018,$6.3M,$7.4M,$10.0$0.0,C 2016 Median Series A Funding by Quarter ($M)$50.0$40.0$30.0$20.0,Q1 2016,$10.0MQ2 2016,Q3 2016,$7.5MQ4 2016,$18.4M,$6.0M,$5.7M,$20.0$10.0$0.0,$30.0,2017 Median Series A Funding by Quarter ($M)$50.0$40.0,Q1 2017,Q2 2017,Q3 2017,$19.5MQ4 2017,9,As venture fundraising hit highs,healthcare-focused VCs continuedtheir torrid pace of investing inbiopharma.Median deal size in 2016 2017was $31M, slightly down from2015 2016s median of $33M.Corporate investors are active,making mostly early-stage bets.Those investing in the largestSeries A deals include GSKs SROne, Pfizer, Celgene and GV.Alexandria led biopharma deals,though investments averagedunder $2M per deal*.,*AREE, Inc. Earnings Press Release9/30/17Source:PitchBook, press releases and SVB proprietary data.,Investors Seek Early-Stage Biopharma DealsMost Active Biopharma Investors*, 2016 2017# OF DEALS2623,221918171615141312111098Corporate Investors*Most ActiveBiopharma Investors calculatedas new (first-time) investments into companies in 2016 2017.,Trendsin HealthcareInvestmentsand Exits2018,Orphan/,Rare Disease,Auto-,Immune,Anti-,Infective,8,9,15,16,27,70,3,5,3,3,6,3,14,4,6,5,10,Anti-Infective,Orphan/Rare DiseaseAuto-Immune,Early Stage,Late Stage,Undesignated,10,Early Stage is defined as Series A & B; Late Stagedefined as SeriesC 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 oncologyexits 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/rares decrease in deal volume could be due to waning crossover investor interest.*Most ActiveBiopharma Investors by Indication defined as Top 42 ventureand corporateinvestors calculatedas new (first-time) investments into companies in 2016 2017.,Oncology,Platform,Neuro,$3,410M,$1,421M,$664M,$734M$541M,$649M,Oncology, Platform Draw New Investor ActivityMost Active Biopharma Investors* by Indication, 2016 2017# DEALS | $ MILLIONS,Logos represent any $25M+financing raised in thattime period/indication.,Trendsin HealthcareInvestmentsand Exits2018,11,Massachusetts and Northern CA See Majority ofActivityNew Biopharma Investments* by Geography, 2016 2017,*New biopharma investments defined as Top 42 ventureand corporate investors calculatedas new(first-time) investments into companies in 2016 2017.Source:PitchBook and SVB proprietary data.,8 deals $257MGermany6 deals $142MIsrael4 deals $78MChina3 deals $179M,NorthernCA51 deals $2,118MSouthernCA22 deals $692M,MA72 deals $2,310M,NY11 deals $306M,Top 5 U.S. BiopharmaWA7 deals $249M,Top 5 OUS BiopharmaCanada4 deals $353MUnitedKingdom,Trendsin HealthcareInvestmentsand Exits2018,Monitoring,7,5,5,7,201646,2017117,$97M$63M,$72M,3 $50M1 $27M,Neuro,CardiovascularOphthalmology,201659$24812%$3.3,201759$34220%$3.9,Non-Invasive Monitoring Drives Device Series AU.S. Series A* Device Investments, 2016 2017,12,A# of InvestmentsTotal Series A Funding ($M)Corporate Investments (%)Median Round Size ($M),BNon-InvasiveMonitoringOrthopedic,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 dealsin 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 corporateventureinvestment, and all first-round investments equal to or greaterthan $2M regardless of investor.Source:PitchBook and SVB proprietary data.,Trendsin HealthcareInvestmentsand Exits2018,C,5,13,*Most ActiveDeviceInvestors calculatedas new (first-time) investments into companies in 2016 2017.Source:PitchBook and SVB proprietary data.,43Corporate InvestorsTraditional venture investor activity in device rebounded in 2017. Nine firms had at least four deals in 2016 2017,compared to only three firms in 20152016.In contrast to biopharma investors focus on early-stage deals, device investments by corporate investors were primarily inlater-stage companies.,Traditional VCs Increase Device InvestmentsMost Active Device Investors*, 2016 2017# OF DEALS87,KCK Group,Trendsin HealthcareInvestmentsand Exits2018,Neuro,Orthopedic,Non-Invasive,Monitoring,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 smallerdevelopment costs and less stringent regulatory requirements.We anticipate that drug delivery investment will continue to increase, as therapeutic treatments move outside the hospital.,1,4,2,5,4,5,7,9,5,3,0,3,3,1,4,5,3,1,1,5,1,6,Non-Invasive Monitoring,Orthopedic,Neuro,Early Stage,Late Stage,Undesignated,14,*Most Active DeviceInvestors defined as Top 35 ventureand corporate investorscalculated as new (first-time)investments into companies in 2016 2017.Early Stage is defined as Series A & B; Late Stagedefined as SeriesC and later.Source:PitchBook and SVB proprietary data.,Vascular Access,Trends:Surgical, Neuro and Non-Invasive Monitoring,$163M$451M,$276M,$97M,$117M,1$167M,$197M,1$235M,$192M,Logos represent any $25M+financing raised in thattime period/subsector.,Niche Investors Generate Major Interest in NeuroMost Active Device Investors by Indication*, 2016 2017# DEALS | $ MILLIONS,Drug DeliveryENT,SurgicalCardiovascular,Vascular AccessMetabolic,Trendsin HealthcareInvestmentsand Exits2018,California Dominates Device DealsNew Device Investments* by Geography, 2016 2017,15,*New DeviceInvestments defined as Top 35 ventureand corporateinvestors based on newinvestments in 20162017.Source:PitchBook and SVB proprietary data.,NorthernCA25 deals $709MSouthernCA6 deals $275M,MN7 deals $241M,MA10 deals $278MPA5 deals $181M,France3 deals $39MSwitzerland2 deals $74MIreland3 deals $55M,Italy2 deals $7M,Top 5 U.S. Device,Top 5 OUS DeviceIsrael6 deals $63M,Trendsin HealthcareInvestmentsand Exits2018,201655$51618%$5.3,201773$50015%$4.7,16,Investors Make Smaller Series A Bets in Dx/ToolsU.S Series A* Dx/Tools Investments, 2016 2017,9,209,40,201626,2017,$529M,$347M,24$140M,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 reimbursementhurdles 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 DxAnalytics subsectors.,C,*Series A Investments includes all U.S. based first-round investments from institutional or corporateventureinvestment, and all first-round investments equal to or greaterthan $2M regardless on investor.Source:PitchBook and SVB proprietary data.,A# of InvestmentsTotal Series A Funding ($M)Corporate Investments (%)Median Round Size ($M),Artificial Intelligence,SyntheticBiology,Point-of-CareDx Tests,TraditionalR&D Tools,Logos representall >$10M Series Afinancings.,
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