COVID-19 diagnostics emerging as prime investment target, SVB analysis shows

Dive Brief:

Developers of diagnostics and R&D tools enjoyed a 62% increase in investments during the first half of the year as venture capitalists flocked to companies involved in responding to the pandemic.
Silicon Valley Bank said in a mid-year report published this week that companies with technologies of use in the COVID-19 response raised $1.3 billion over the analyzed period. Investment in all types of diagnostics and R&D tools companies was up $1.2 billion over the prior period.
At the midpoint of 2020, the sector was already 76% of the way to the amount raised across all of 2019, leading SVB analysts to project it's on track to hit a three-year high.

Dive Insight:

Market turbulence and the negative effect of COVID-19 on parts of the healthcare industry could have deterred venture capitalists from making investments over the first half of the year. Instead, investors continued to identify and seize opportunities, leading to a surge in the inflow of capital to the diagnostics and R&D tools sector and steady support for medical device startups.

Developers of diagnostic tests accounted for much of the growth. Investors committed $1.3 billion to such startups over the first half of the year, up from $545 million in the comparable period of 2019.

The uptick in investment was underpinned by three large financing rounds. Grail raised $390 million to continue advancing its liquid biopsies. Karius secured $165 million to support commercialization of its system for the non-invasive detection of pathogens. And LumiraDx quietly filed a series of notices about financing that SVB calculates were worth $302 million.

While COVID-19 was a factor in many investments, that set of the three biggest financing rounds is only partly related to the pandemic. Grail’s work is focused on cancer. Karius is pitching its diagnostic as complementary to COVID-19 tests but raised its round before the pandemic really took off.

LumiraDx is more directly involved in the response to COVID-19. In March, the startup teamed up with Chembio Diagnostics to develop point-of-care tests for SARS-CoV-2 and antibodies against the virus. However, LumiraDx is yet to disclose how it will use the money it has raised.

Different dynamics are affecting the medical device sector. SVB identified concerns “that venture investment would be impacted by clinical trial delays and declining revenue caused by COVID-19.” Yet, the value and, in particular, volume of deals was up, in part due to interest in companies working to counter the pandemic.

SVB calculated the median investment in companies involved in the COVID-19 response was more than twice the size of that of other deals. The calculation is based on a broad definition of COVID-19 companies. For example, Exo, a developer of a handheld ultrasound device is included in the group.

SVB published its report a week after the PitchBook-NVCA Venture Monitor shared its assessment of venture funding in the second quarter. The report, which was created in partnership with SVB, looked at funding across all industries and found venture investment “largely proved resilient.”