Private Financing Trends: Ophthalmology Ranks Tenth

SAN FRANCISCO, Calif. — Almost $25 billion in venture funds have been raised in just the United States alone over the past 2.5 years to deploy into venture-backed healthcare companies, said Jonathan Norris, managing director at Silicon Valley Bank, during this year’s OIS@AAO conference, and ophthalmology has grabbed the No. 10 spot. Mr. Norris highlighted some of the trends during a session here on Private Financing Trends, including that the upward trend seems to be based on an active exit market, particularly in biopharma.

The overall increase has been fueled by billion-dollar initial public offerings (IPOs) and mergers and acquisitions (M&A) exits in the market, and importantly, the crossover funding in the private market leading to very large round sizes at high valuations, Mr. Norris said.

Actual dollars invested into biopharma companies both in the U.S. and Europe more than doubled from 2017 to 2018, with $17 billion invested into venture backed biopharma companies. Investments in 2019 are off about 12% from last year, he said, but “that still represents a significant amount of capital. “

Dollars invested into medical devices have been increasing, but are honing in more on later-stage companies. “Crossover investors (such as Fidelity Investments and Perceptive Advisors) have seen that the market is receptive to later stage device stories, which has led to bigger rounds and more dollars into the sector,” he said.

Investing in ophthalmology
Although the orthopedic and cardiovascular fields lead the list of overall dollars invested in medical devices, ophthalmology is not far behind, rounding out the top 10 specialties, Mr. Norris said. Ten ophthalmology deals in Series A garnered $70 million for companies such as Eyenovia and Kedalion, among others, while 14 deals in later stage brought in $231 million for companies that included LensGen, Avedro, CorneaGen, PowerVision, and RxSight, among others. While the majority of IPOs in biopharma overall are in pre-clinical or phase 1 stage, in ophthalmology it’s typically phase 2 or phase 3, he added.

“What’s being seen are some very large biopharma financings happening early, with traditional Series A deals including crossovers, which quickly turn into an IPO 6 to 9 months later,” he said.

In biopharma, ophthalmology generated 13 deals worth $156 million from 2018 through the first half of 2019, for companies such as Asepticys, Oculis, Oyster Point, and SilkTech, while later stage companies in ophthalmology generated $418 million across 18 deals for companies such as PanOptica, Iconic Therapeutics, Allegro, TearClear, and 4D Molecular Therapeutics.

Exits
IPOs drive most of the recent activity in biopharma, but when a company does exit through an M&A, it “happens quick and it happens early,” Mr. Norris said. Through Q3 of 2019, 7 of the 11 deals were either pre-clinical or phase 1, and the median dollars invested was only $37 million. So companies are either raising a large crossover round and looking for an IPO, or raising a smaller round which gives them options to be open to an M&A, and potentially do a crossover-led private financing down the road, Mr. Norris said.

There have been 14 device M&A exits this year, with a median up-front value of $115 million. The largest from venture-backed IPOs in ophthalmology is Avedro, which is up 77% since its IPO. For venture-backed M&As, the largest ophthalmic deal since mid-2019 is PowerVision, at $285 million (purchased by Alcon in March).

What’s left for the year? “We’ll see dollars invested come down a little bit for the rest of the year, but it’s down off of a record 2018 and I think that’s okay,” Mr. Norris said.