Though issues continue to impact the industry – labour shortages, supply-chain shortages – investment is still high in the industry, with particular areas and locations experiencing strong investment. Which areas are hotspots for investment, and what are the predictions for investment in 2022?
Following the successes and innovations of 2020, it is unsurprising that the key areas of interest within the life sciences industry are biopharma, telehealth, and medical devices.
70% of biopharma investors said competition over a limited number of high-value or highly innovative assets would have the greatest impact on valuations in the subsector in 2022. Diagnostic lab investors and biopharma services expect valuations to rise across all segments of the subsector in 2022, with expected increases of between 10-20% overall. Venture Capital (VC) investment in biopharma was at an all-time high in 2021, with private investments hitting $23.4bn in Q1, beating the previous quarterly record by 56% – though the high volume of newly public biotech may slow the pace of investment, there will still undoubtedly be a steady stream in the subsector.
Investment in telehealth is set to break 2021’s records, with almost $30bn being brought in by U.S.-based digital health startups in 2021. Globally, telehealth raised $4.2bn in the first half of 2021, and is only set to continue hitting high levels of investment as it moves towards ‘telehealth 2.0’ (the shift from urgent care visits towards more specialised care). In particular, digital therapeutics, personalised medicine, and chronic condition management are areas of interest for continued investment.
The global medical devices industry is expected to reach a valuation of $612.7bn by 2025, growing at 5.4% CAGR. High growth is expected in product areas such as wearable healthtech, robotics nanotechnology, and extended reality devices.
Though life sciences investment is stable at relatively high levels as we move through 2022, there are specific locations that are emerging as investment hotspots. Europe in particular has had high VC financing, totalling over €15.5bn over the last 5 years, with an annual growth of 16%.
Few locations have supported the innovation of life sciences like Germany through strong governmental support and private and public stakeholder commitments. Though the life sciences sector may have risen on the agenda as a result of the pandemic in many other countries, Germany has always had a strong focus on the industry, supporting both domestic and international research. Spending on R&D in Germany is expected to reach 3.5% of GDP by 2025, having already doubled in the last 20 years. VC financing over the last five years in Germany has been more than €3bn, and in 2020 alone was €1bn – the investment picture remains positive.
The likes of Johnson & Johnson, Pfizer, and Roche all have a presence in Switzerland for a reason – there is a variety of pharma and biotech companies in the region that give Switzerland its strong reputation as an innovation leader in life sciences. In 2021, Swiss life science companies raised over €500m of VC funding, and productivity of the Swiss pharma and biotech sector is 7x higher than that of the global economy – adding in new tax legislation, there are more contributing factors than ever before for high investments.
The extensive R&D capabilities of the Netherlands has attracted international life sciences clusters, with the largest share in R&D expenditure from private investment in the most relevant R&D sectors (life sciences & health, and high tech). Additionally, the Netherlands is a key location for biotech and medical device industries – areas which are also seeing high investment.
Investment in life sciences in the US hit a record of $70bn of private and public capital, a 93% increase from the previous record of $36bn received in 2018. Innovative technologies and aging demographics are also driving the demand for healthcare and R&D facilities in the US, with investment in life sciences real estate hitting $21.4bn in 2021, an increase of 62% from 2020. All-time highs were reached in funding, job growth, and demand for lab space and new construction – data trends suggest that these trends will be continued over the next year.
Across subsectors, investment growth is still expected to be high, however, there are specific areas gaining high investor interest. Oncology, and cell and gene therapy are areas of interest within pharma, with neurology and cardiology also receiving high interest. Given the attention that was attracted by technologies such as mRNA, as investors seek to diversify their portfolios, these areas are expected to be of interest. Companies focusing on cancer therapeutics were among the most highly financed in 2021, with 34 Series A deals worth $1.1bn, continuing an investment trend for the therapeutic areas that are truly making a difference in society.
Though the investment picture is positive in subsectors and specific locations for life sciences, there is still ongoing uncertainty as to the sustainability of high investments in life sciences. However, 2022 is full of promise for many facets of life sciences, with a greater focus on tech advancements and regional clusters – areas that were of interest to investors in 2021 such as biotech and medical devices will continue to receive high levels of investment as they evolve in the recovery period from the pandemic. The record-highs of 2020 and 2021 may not be as quickly overtaken as things slow down, but it can be expected that the areas above will remain the focus, given that they have been resilient throughout the uncertainty.
If you want to find out more about the future of life sciences and how investments may impact the industry, get in touch with the Panda team today.