Private Financing for Life Science Tools and Diagnostics Firms up Significantly in First Half of 2024

NEW YORK – Private investment in life science tools and diagnostics firms in the first half of 2024 was up substantially from a year ago, according to an analysis of deals reported by GenomeWeb and 360Dx.

The rise, said one industry observer, reflects increasing investor interest in these areas as valuations have fallen to more reasonable levels following the dramatic spike in the life science market several years prior.

In the first six months of 2024, GenomeWeb and 360Dx reported on 44 private financing transactions in the tools and diagnostics spaces, up 7 percent from 41 transactions in the same period in 2023. Not only were there more transactions but the average transaction size in H1 2024 was $31.6 million, up 39 percent from $22.7 million in H1 2023. And total private investment in tools and diagnostics companies in H1 2024 was $1.39 billion, up 53 percent from $907.4 million in the year-ago period.

The largest deal in the first half of 2024 was Freenome's $254 million fundraising, led by Roche and joined by investors including a16z Life Sciences Growth Fund, the American Cancer Society's BrightEdge Ventures, ARK Investments, ArrowMark Partners, Artis Ventures, Bain Capital Life Sciences, Cormorant Capital, DCVC, Eventide Asset Management, Intermountain Ventures, Perceptive Advisors, Polaris Partners, Pura Vida Investments, Quest Diagnostics, RA Capital Management, Sands Capital, Section 32, and Squarepoint Capital.

Another diagnostic and liquid biopsy firm, BillionToOne, closed the second-largest financing deal of H1 with its $130 million Series D round led by Premji Invest.

Proteomics firm Alamar Biosciences was next with a $128 million Series C round led by Sands Capital.

Zephyr AI and Karius also closed funding rounds topping or equaling $100 million in the first half of 2024, raising $111 million and $100 million, respectively.

In the first half of 2023, only two firms closed financing rounds above $100 million, de-extinction company Colossal Biosciences, which raised $150 million in a Series B round, and Chinese nanopore sequencing outfit Qitan Tech, which raised $103.7 million in a Series C round.

The first half of 2024 also saw the close of several large new investment funds focused on the biotech, tools, and diagnostics spaces. At the beginning of the year, Goldman Sachs Asset Management announced the close of its $650 million West Street Life Sciences I fund, which the bank said was its first fund targeting the life sciences. It said it plans to invest in "early- to mid-stage therapeutic companies with multi-asset portfolios in addition to life sciences tools and diagnostics companies."

In June, Foresite Capital, which in the past has funded companies including 10x Genomics and Grail, announced the launch of its $900 million Fund VI, which the company said will invest in firms focused on precision medicine, life science infrastructure, and healthcare delivery.

Shashanka Muppaneni, a managing director and partner at Boston Consulting Group covering healthcare strategy and M&A, said that over the last six months, he has seen "more loosening of capital" as companies seeking funding have accepted that valuations in the space have declined since the heady days of 2021, and investors have grown more confident in their assessments of these firms and the larger market.

"I think six, 12 months ago, people just didn't know where the floor was on a lot of these assets, and so it was hard to peg whether you were buying in at the very top of the market or buying in at the bottom," Muppaneni said.

More recently, he noted, a series of bankruptcies and down funding rounds have reset the market, fostering a rise in investment.

"The valuations today are more grounded," Muppaneni said, noting that they are closer to what they were four or five years ago, "before the excess in the market, both the IPOs and the de-SPACs that happened."

He added that the loosening of private financing applies primarily to companies led by experienced and high-profile management teams.

"If you're an entrepreneur just starting out in this space, I think it is still very, very hard to go get the dollars raised," he said.

Zal Bilimoria, solo general partner at venture capital fund Refactor Capital and a former partner at Andreessen Horowitz, where he helped launch the firm's Bio Fund, said that "life science tools, diagnostics, proteomics, [and] genomics" remain attractive areas for investors, adding that over the last six months he has seen venture capital begin to return to the space.

In June, Bilimoria closed a $50 million fund, Refactor's Fund 4, with which he plans to make pre-seed and seed investments in areas including life science.

He said he views women's health, including fertility and in vitro fertilization, as a hot area for investment, noting that he sees an increasing willingness to spend, both by individual consumers and employers, on testing in this space.

Next-generation proteomics tools, particularly technologies outside mass spectrometry, are also an interesting area, Bilimoria said.

Vikram Bajaj, managing director of Foresite Capital, said one trend his firm sees emerging is the move of precision medicine technologies common in oncology to other areas like cardiovascular, metabolic, and neurodegenerative disease.

Early detection and prevention of disease also continues to be an area of interest for Foresite, Bajaj said. "We're looking at and continue to evaluate investments that are in that space."

Muppaneni said that artificial intelligence remains a hot area with what he termed "mega-rounds" — funding rounds of $100 million or more — going in many cases to companies with an AI angle. That observation tracks with the funding deals reported by GenomeWeb and 360Dx. Of the five firms that raised $100 million or more, four — Freenome, BillionToOne, Zephyr AI, and Karius — prominently feature AI as part of their pitch.

He said, however, that investors are more circumspect than in the past.

"When you say you have an AI-based discovery engine or an AI-based analytical engine, folks are [now] asking if it is really differentiated and what is its competitive moat," he said.

Speaking more generally, Bilimoria said he believes tools and diagnostics firms are entering a favorable period for funding despite persisting macroeconomic headwinds like high interest rates. "There is a lot of dry powder out there getting ready to be deployed in these startups," he said.

Fortunes can shift quickly, though. Two months after closing on its $254 million funding round, Freenome announced plans to lay off 20 percent of its workforce following the release of lackluster trial results for its blood-based colon cancer detection test.

Bajaj suggested that such risks are inherent to the venture capital business. He noted that the heterogeneity and relatively low prevalence of a disease like cancer point to the need for very large and expensive clinical studies.

However, he said, "big ideas like that, which are capable of having an enormous impact, that is part of what the venture community is here to fund."