Life Science VC Funding Hits Record Levels. So Does Life Science M&A. 

For a measure of the dramatic growth in life science startups, spurring demand for real estate, consider the record-high dollars and cents. At the other end of the spectrum, for a measure of the sector’s increasing maturity, consider the record-high dollars and cents. 

Newmark’s Daniel Littman reports that life science and healthcare venture capital funding hit a record $43.3 billion in 2021. That’s a 30% increase from 2020, which was the previous record high.  

“Many factors are responsible for the rise in life science investment over the past 10 years, such as the sector’s secular growth characteristics and technological advancements making drug development and the creation of therapies and treatments faster and more efficient,” writes Littman, associate director of capital markets research.

“In addition to these existing tailwinds, the pandemic unmistakably had a further positive impact on demand and investor psychology, as other sectors of the economy were severely disrupted by COVID-19 and as healthcare and rapid vaccine development were brought to the forefront of global priorities.” 

Similarly, Littman reports that fundraising activity for funds targeting life science and R&D assets has reached unprecedented levels, with an estimated $42 billion in activity occurring since 2020, equating to a leveraged purchasing power of more than $120 billion.  

In a related sector, also pointing to growth in demand for real estate, Colliers’ Shawn Janus and Stephen Newbold report that growth in private equity investment into healthcare has outpaced broader PE deal activity since 2009. The annual PE healthcare deal total rose to 2,360 in 2020, the highest annual total on record. 2021 is on track to post a similar performance, they report. 

The dominant area of focus for PE investors in the healthcare space has been service providers, especially physician practices. Accordingly, PE investments here are expected to come under increasing scrutiny. “It is critical that the quality of service and outcomes are sustained and improved upon, without passing on notably higher costs to clients,” Janus and Newbold say. 

At the other end of the life cycle for life science companies, Littman says M&A activity climbed 60.0% year-over-year in 2021, for a record-breaking $241 billion. The 10 largest M&A deals in the life science space accounted for more than half that total, led by Astrazeneca’s acquisition of Alexion. 

“As the life science industry has advanced and become more competitive, there has been a greater need for established pharmaceutical companies to pay for innovation and reinforce their presence across life science verticals, from cell and gene therapy to oncology and medical devices,” according to Littman. “At the same time, many of those same companies and conglomerates have divested from their non-core businesses, freeing up capital to acquire innovative businesses with secular growth characteristics.” 

M&A deal size averaged $632 million in 2021, the third largest average in the past decade—and interestingly, representing the third consecutive year of declining deal size. “The life science and biotechnology ecosystem has matured substantially over the past decade and now features a fast-growing number of billion-dollar ‘unicorn’ companies,” Littman reports.