Private Financing for Life Science Tools and Dx Firms Rises Nearly 10 Percent in H2 2024

NEW YORK – Total private investment in life science tools and diagnostics firms in the second half of 2024 was up nearly 10 percent from a year ago, according to an analysis of deals reported by GenomeWeb and 360Dx.

The rise continues an upward trend that began in the first half of the year and, industry observers suggested, reflects a return of investors to the space as valuations have reset to lower levels.

In the last six months of 2024, GenomeWeb and 360Dx reported on 49 private financings in the tools and diagnostics spaces, up 29 percent from 38 transactions in the same period in 2023. Total investment in the space also jumped to $1.51 billion in H2 2024, up 9 percent from $1.38 billion in H2 2023. However, the average transaction size of the private deals tracked by the two news sites fell to $30.8 million, down 15 percent from $36.3 million a year ago.

Transactions and total investment in H2 2024 were also up sequentially versus the first half of 2024, with the number of transactions rising by 9 percent and the total investment also rising by 9 percent. Average deal size was down in H2 versus H1 by 3 percent.

For full-year 2024, GenomeWeb and 360Dx reported on 93 private financings in the tools and diagnostics spaces, up 18 percent from 79 in 2023. Total investment for those transactions was $2.90 billion, up 27 percent from $2.28 billion in 2023. Average deal size in 2024 was $31.2 million, up 8 percent from $28.9 million in 2023.

The largest deal in the second half of 2024 was Element Biosciences' $277 million Series D round, which was led by Wellington Management, with participation from new and existing investors including Samsung Electronics, Fidelity, Foresite Capital, funds advised by T. Rowe Price Associates, and Venrock.

Diagnostic and liquid biopsy firm, BillionToOne, closed the second-largest financing deal of H2, with a $140 million non-dilutive financing agreement with Oberland Capital Management. This followed its $130 million Series D round, which was the second-largest private financing deal reported by GenomeWeb and 360Dx in the first half of 2024.

Publicly traded sequencing firm Oxford Nanopore was next with a private placement of ordinary shares that raised roughly $102.5 million from institutional investors and life science investor Novo Holdings.

Diagnostics firm Cytovale also closed a $100 million Series D round in H2 2024 led by Sands Capital with participation from new investor Canada Pension Plan Investment Board and existing investors Norwest Venture Partners, Global Health Investment Corporation, and Breakout Ventures.

In comparison, the second half of 2023 only saw two deals at or above $100 million: Tome Biosciences' combined Series A and B rounds, which raised $213 million, and Harbinger Health's $140 million Series B round.

Bob Lavoie, managing director and senior partner at Boston Consulting Group, identified two developments driving the uptick in investment. Starting in the back half of 2023, firms began coming to terms with lowered valuations, accepting that they could no longer command the high valuations they had enjoyed during the boom times of 2021.

At the same time, companies — particularly small- and mid-cap firms — began focusing more intently on their cost positions, Lavoie said.

"I think for a long time [Wall Street] analysts were focused on top-line growth for a lot of these smaller, innovative companies," he said. "I would say that in the last 18 to 24 months there has been a shift more toward cost position and when a company is going to become profitable, and that has resulted in quite a bit of retooling and cost position focus from a lot of these companies."

Donna Hochberg, a partner and managing director at consulting firm Health Advances, suggested that the funding environment for life science tools was stronger than for diagnostics, noting that the flow of deals in the latter space "remained very slow."

Hochberg said that at the beginning of the year "buyers and sellers were not in the same place on valuation." She noted that while this situation has since improved, with companies seeking funding lowering their expectations, concerns around regulatory uncertainty and the possibility of lower Medicare and Medicaid spending under the incoming Trump administration continue to weigh on investors.

Lavoie echoed the latter point, noting that the incoming Trump administration's apparent focus on cutting government spending "could potentially have some implications particularly for the diagnostics market."

Hochberg's Health Advances colleague Gary Gustavsen said that firms developing high-value, specialty diagnostics also struggled to attract funding, a trend he said has now spanned several years.

"There has been enough compression of valuations of public companies to where I think the venture funds and [private equity] groups that have looked at that space really need to feel good about the fundamentals and the growth prospects [of a company]," he said.

Lavoie noted that just as the diagnostics business benefited significantly from spending and investment during the COVID-19 pandemic, it has been more significantly impacted than other areas within life science by the wind down of the pandemic.

Companies and investors "are all working through what are the next applications for a lot of this infrastructure that was" developed during COVID, he said. "I think there is still a bit of a wait and see in terms of what manifests from the aftermath of all of those investments and that infrastructure build."

Hochberg said that within diagnostics, digital pathology, point of care, and neurology are currently hot areas. She added that she sees private equity firms focusing more on firms that provide components used in tests as opposed to test developers themselves — "calibrators and controls and the raw materials that go into diagnostics as opposed to the test itself," she said. "It's a little bit more de-risked and a little more diversified, because you aren't relying on any one test being successful."

Though life science tools firms fared better in 2024, Health Advances Partner Daniela Hristova-Neeley, who covers the tools space, said that even with the jump from 2023, "funding is still pretty low relative to the historical rate."

Within life science tools, AI continues to be a hot area, Lavoie said. "As people look at potential investments, companies that have either embraced [AI] technologies to drive deeper insights and higher impact for their clients are, I think, being seen as increasingly attractive."

Hristova-Neeley said there are indicators suggesting that "2025 will look better" for life science tools funding. She noted, for instance, that the number of clinical trial starts "seems to be stabilizing," which could bode well for the business.

Hochberg said, however, that the broader economic landscape is likely to remain a difficult one with relatively high interest rates and the looming threat of tariffs keeping investors cautious.

"I think folks still feel like the general economic environment is going to be challenging," she said, adding that this makes "a huge uptick" unlikely.