As an investment area, the healthcare industry flourished in the first half of 2015. But some investors are now showing signs of caution, as the sector fails to provide any clear long-term direction.
There is no denying that biotech companies have achieved great success over the past three years thanks to market-changing innovations, but it is too early to predict whether this growth, driven largely by non-venture capital investors with a hunger for biopharma, will persist.
Plus, until very recently the biotech sector was dominated by the US, with little activity taking place in Europe by comparison.
Read more: Why biotechnology is brewing a big bubble
But data analysed by Silicon Valley Bank in its mid-year update on “Trends in Healthcare Investments and Exits” illustrates that at present, the growth the industry is benefiting from shows no signs of slowing down, and the UK is at last earning a reputation for being a biotech finance centre in its own right.
Looking ahead, it's likely that much of the attention the sector is attracting now will continue into 2016, bringing with it new investment opportunities. These are the four key trends we can anticipate in healthcare investments next year.
There'll be even more M&A activity
Silicon Bank's analysis of venture-backed healthcare activity between January and June 2015 shows that the healthcare venture market is solid.
In the first half of the year, 24 biotech IPOs took place, with a quarter of these raising more than $100m (£65m). This has in turn fuelled M&A activity in the sector, which remained focused on early-stage businesses.
Read more: London's pharma sector gets a boost as Shield and Faron announce plans to float in the capital
Additionally, dwindling internal R&D pipelines at big pharmaceutical companies are making them increasingly eager to snap up innovative businesses developing new drugs and devices.
Considering that this activity has been on a continual upward trend, there's nothing to suggest it's going to come to an end any time soon.
European biotech will receive more interest
European biotech, so often in the doldrums, has soared in recent years with several large financings of private companies. Leading the way were Immunocore, which raised $320m from existing and new investors for its ground-breaking cancer technology, and Oxford Nanopore, which raised $108m for its unique molecular sequencing technology.
There have also been innovative deals, such as Mereo Biopharma’s $118m fundraise. Mereo, in a departure from a traditional venture capital investment, was created to acquire a portfolio of assets from Novartis, which will hold an equity stake alongside other investors.
Increased US investment in UK biotech
In a further boost to the UK’s biotech scene, US investors are increasingly attracted to these shores.
Businesses such as Kalvista Pharmaceuticals, which has already raised $33m, have enjoyed the support of investors who have no shortage of US assets to invest in but are attracted to better valuations and an equally strong science.
The sector will be resilient to macroeconomic events
Capital from the US, combined with heavy hitters in UK like Woodford’s £800m Patient Capital Trust, not only have the ability to support investment in the sector but, as recent events illustrated, can withstand macro-driven market volatility that has little to do with the sector itself.
Whilst biotech stocks are down from their peak, the selloff has largely been instigated by late entrants and generalists. Long-time investors and supporters of the sector remain committed to their investments and recognise that the fundamentals are strong and have little connection to wider macro-driven swings.
Overall, 2016 looks like it will be another great year for the healthcare industry in the UK, as conditions for success should persist.