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Healthcare tech sees robust investment in Q3; biotech draws $20.2B in 2020

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Healthcare tech sees robust investment in Q3; biotech draws $20.2B in 2020

Healthcare raised $22.44 billion through private equity and venture capital deals in the third quarter, indicating strong investor interest in the industry amid the uncertain COVID-19 situation.

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The gross value of these investments, which include M&A deals where the buyer was a private equity or venture capital firm or a hedge fund manager, was up 17.4% on an annual basis, according to S&P Global Market Intelligence data.

This is the third-highest total for the healthcare industry during a single quarter since 2016. Investments peaked in the second quarter of 2018, with 701 deals bringing in $38.68 billion.

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The aggregate transaction value for the healthcare industry in 2020 was $60.72 billion based on 2,072 deals tracked by S&P Global Market Intelligence. Only industrials and information technology attracted more investment and raised $65.05 billion and $97.50 billion, respectively.

Biotechnology, which had the highest investment activity among healthcare subsectors in the first half of the year, held onto its lead and brought in about one-third of the total investment pool in 2020. Biotech businesses garnered $20.19 billion in investments based on 577 deals announced between Jan. 1 and Sept. 30.

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Healthcare technology also saw strong investor activity in the third quarter and had raised $12.51 billion from 482 deals in the three quarters ending Sept. 30 — second-highest among all healthcare subsectors in 2020.

Healthtech had 273 deals in the first half of the year, bringing in about $3.47 billion and landing fourth behind biotechnology, pharmaceuticals and healthcare equipment during the first six months.

Health and biotech were big bets for venture capital investors in the third quarter and investments in these sectors will likely remain very high, along with investment in financial technology, business productivity solutions and digital platforms, according to KPMG Private Enterprise's Oct. 21 report.

The COVID-19 pandemic drove investors in most regions to focus on companies aligned to the needs of people and businesses within the "new normal," including those focused on enabling remote working and home learning or enhancing online service capabilities.

READ MORE: Want to learn more about trends in healthcare investing? Sign up for our Essential Healthcare weekly newsletter here.

The KPMG report, which covers the global analysis of venture funding in the third quarter, noted that in addition to investment in testing and contact tracing, the COVID-19 pandemic spurred activity in remote diagnostics, cancer screening, medical devices, online pharmacies and remote surgery.

"COVID-19 is driving a lot of investments in healthcare, accelerating innovations quite significantly even outside of virus-specific solutions," said Philip Ng, partner and head of technology KPMG China. "We are seeing rapid advancement in remote diagnostics and remote surgeries. Part of this is because of the development of 5G technology, which is reducing the transmission delays."

In the fourth quarter, KPMG expects healthtech and fintech to remain key investment areas for venture capital investors who are looking for opportunities that address the needs of businesses and consumers using digital approaches. The COVID-19 vaccines will also drive investor interest to get support for rapid and efficient distribution.

Walgreens Boots Alliance Inc. in July agreed to expand a partnership with primary care provider VillageMD with a commitment to invest $1 billion in equity and convertible debt. The pharmacy company purchased $250 million common shares from VillageMD and expects to own 30% of the company after the deal is complete.

The companies plan to launch 500 to 700 "Village Medical at Walgreens" clinics across more than 30 U.S. markets in the next five years.

This was the largest deal for the quarter, excluding acquisitions, making up a big portion of total investments in the managed healthcare sector, which has brought in $1.39 billion from nine deals in 2020.

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Bain Capital LP completed the cash tender offer for Japanese nursing home operator NichiiGakkan Co. Ltd. during the third quarter. The transaction, valued at $1.97 billion, was the largest acquisition by a private equity/venture capital firm or a hedge fund manager in the healthcare industry.

Swedish private equity firm EQT AB (publ) is acquiring Metlifecare Ltd. under a $1.04 billion revised offer that has gained shareholder approval.

In September, Shanghai-based biotechnology company I-Mab priced a $418 million private placement for an association led by Hillhouse Capital Group, a unit of Hillhouse Capital Management Ltd.

Another biotechnology company, Cerevel Therapeutics Holdings Inc., agreed to sell shares worth $320 million to institutional investors through private investment in a public entity at $10 per share. The investors include Bain Capital, Perceptive Advisors LLC and pharmaceutical giant Pfizer Inc. The private investment was announced in July along with the merger between Cambridge, Mass.-based Cerevel and special purpose acquisition company ARYA Sciences Acquisition Corp II.