Medtech startups fared well in the second quarter with investment activity on track to surpass last year and venture capital exits are on the rise, according to PitchBook's latest sector report.
It's the latest sign that the medtech sector may be through its recent dry spell.
Medtech venture capital investment held steady in Q2 with $3.3 billion of deal value, down slightly from the $3.5 billion of activity in the first quarter, according to the report. The $3.3 billion in total deal value marks a 7% decline from Q1 but a 3.2% gain year over year.
This marks the second straight quarter of higher deal activity compared with the prior-year period. Through the first half of 2024, medtech VC investment, at $6.8 billion, surpassed last year, and funding for the full year is on track to be close to 20% higher compared with 2023.
In Q2, there were 206 total deals, down 3.3% quarter over quarter and down 13.4% year over year.
"Despite quarterly variability, the current level of VC investment is a positive sign for the medtech VC landscape and lends credence to the view that the market has passed through the trough of investment activity," PitchBook analysts reported.
After several quarters of minimal exit activity, the story shifted in Q2 with several VC-backed startups having an exit outcome. VC exits reached $6.6 billion in the first half of the year, driven mainly by Tempus’ initial public offering, and the first six months of 2024 were higher than medtech exit value for all of 2023. However, PitchBook analysts note that exit value remains well below the levels seen in 2021 and 2022.
"Given the unique market dynamics during the height of the COVID-19 pandemic, and considering current conditions, we view VC exit levels in medtech for 2024 so far as a solid win for the sector and a positive sign for deal value and exit momentum going forward," PitchBook analysts wrote in the report.
The report called out notable deals from Q2. Insightec raised $150 million, one of the largest VC transactions in the quarter, and BillionToOne raised $130 million in a series D round.
Kardium, Karius, and Delfi Diagnostics announced VC deals above $100 million during the quarter. Illumina completed its divestment of GRAIL, which is now trading as a public company under the ticker symbol “GRAL.” Illumina is maintaining 14.5% of GRAIL’s shares.
Several large acquisitions also happened in Q2. Johnson & Johnson acquired ShockWave Medical for $13.1 billion. Boston Scientific acquired Silk Road Medical for $1.2 billion.
Tempus AI’s IPO is rallying hope for the medtech industry after it went public in June and raised $400 million, though the company was not profitable.
“The IPO was an important test of investor appetite for precision medicine, a sector that has seen a wide range of startups emerge over the past half-decade,” PitchBook analysts wrote.
PitchBook also noted that the Tempus AI’s public listing could raise the chances that unprofitable companies score investments, if there’s a route to an IPO.
The most active VC investors in medtech in Q2 were the European Innovation Council Fund, SOSV, Alumni Ventures and Arboretum Ventures, according to PitchBook.
There were 28 PE buyouts in the sector and 19 PE growth deals, the report says.