November 23, 2016
The healthcare sector has seen a decline in venture investments, particularly for early-stage investments, as pricing pressures, stringent regulations, rising development costs, reimbursement issues, and declining R&D productivity have proved significant barriers, according to a new report by GBI Research.
According to report, completed global healthcare private equity deal values exhibited a negative compound annual growth rate of 11.8% from 2010 to 2015, with 2010 recording a total of $33.9 billion, falling to $18.1 billion by 2015.
GBI analyst Rodrigo Gutierrez Gamboa commented: “The accumulating evidence of the decline in R&D productivity adds to the uncertainty associated with innovation in the healthcare industry, which in turn reduces the attractiveness of the field for investment."
The report states that if investments from private equity and venture capital firms in the healthcare industry continue to decrease significantly, it could have serious and wide-ranging consequences not just in the healthcare sector, but in wider economies.
However, Gamboa added, “[d]espite the precarious investment situation, many start-up healthcare companies, particularly those in the biotechnology segment, are turning to different sources of capital and funding. Many companies are obtaining funding from angel investors, which are typically individual high-net-worth investors that provide financing through loans or equity investments."
“Biotech start-ups – particularly those outside of the US – have had to embrace a variety of creative alternative funding sources, and move away from business models that require substantial investment. New companies often adopt a combination of funding sources such as angel investors, grants, and non-VC institutional investors.”