Right-spinning a rocky start for healthcare in 2022. What happens next?
No. This is not the beginning of the end for the life sciences.
2021 was a year unlike any other. The unprecedented growth we predicted in our Health Care in the Crystal Ball feature from February 2021 was far exceeded by the reality. No one could have anticipated the runaway success or the volume of IPOs that year.
Perhaps it was a little too buoyed by the halo effect of a pandemic-stressed global public, but the life sciences had something of a savior’s sparkle and glow in 2021. The market impact of that may be impossible to measure but it was far from insignificant. Global health innovation funding doubled from 2020 to 2021. And 2021’s 45 IPOs in Q1 alone dwarf the mere 14 we’ve seen during the same period in 2022.
In light of the previous stratospheric heights, it would be easy to take Q1 2022 as a bellwether of some calamitous descent. IPOs are down, returns are down, layoffs are up … nerves are on edge. It’s a downward turn that’s been somewhat mirrored in a reputational dip from an all-time high of 62% in December 2020 to 47% in 2022, according to the latest Harris Poll.
But taking 2021 as the baseline by which we measure the health of the healthcare sector is a little like contrasting the NBA with a Michael Jordan or LeBron James in the mix versus one without. From the perspective of those outsized standards, business as usual is bound to look a little down-at-the-heels.
That’s not to say the quarter hasn’t been disappointing or that there isn’t reason for concern. But instead of taking these trends as signs that the sky is falling, let’s strike a reflective posture and accept it as our inevitable repositioning in relation to the clouds our heads have been floating in for the last few years.
2021 was the kind of rainmaking year we’ll be talking about for decades. We were going to have to come back to earth at some point. But that doesn’t mean we should just cover our eyes and brace for the hard landing.
There’s more to 2022 than meets the eye.
THE CURSE OF LIVING IN INTERESTING TIMES
Given the state of the world over the last three years, it would have been genuinely alarming if funding in the life sciences had continued its ascent unabated. No matter how bright our outlook, we couldn’t be immune to the volatile exertions of globalization.
The pandemic alone — with its unfathomable sphere-spanning upheavals — should have been enough to dampen the furor for funding health care ventures. That it didn’t, speaks volumes about the (continued) optimism and enthusiasm for innovation in the sector.
But the pandemic hasn’t been a singular event, exerting its influence in a vacuum. It has been the overarching backbeat to a new rhythm of the world, the patterns of which continue to unravel from one day to the next.
Global supply stalled with COVID-19, then ground to a halt with Ever Given, sending shock waves out across every link of an already creaking chain. The echo of that trauma will be with us for years, decades even.
Political tensions and trade disputes between the Middle East and the West, between China and, well, just about everyone, once seemed like the major diplomatic hurdles of the day. These have become afterthoughts to a war in Eastern Europe that is challenging the world order in every conceivable way.
On a granular level, Ukraine’s ambitions to emerge as a hub for biopharma and biotech research lies smoldering right along with its cities. And Russia’s significance as a go-to testing ground for pharmaceuticals is threatened by waves of increasingly rigid sanctions and public outrage.
Food and energy shortages, constrained production, supply bottlenecks, skyrocketing prices, market corrections, rising interest rates and other inflationary trends are all variables in a new status quo of unpredictability. That’s the reality that’s driving moves in the capital markets (or inspiring a lack of movement).
For the times we live in, a certain amount of caution and restraint isn’t surprising — it’s warranted. This is as true for the life sciences as it is for any other sector. And we’ve been fortunate to avoid it longer than most.
THE REALITY CHECK TRENDS UPWARDS FOR HEALTHCARE
Global venture funding reached $160 billion in the first quarter of 2022, down 13% from $184 billion raised in the fourth quarter of 2021. North American startup investment fell 11% in the first quarter of 2022, the first quarterly decline in nearly two years.
By comparison, US digital health funding for Q1 2022 closed at $6.0B, well behind Q4 2021’s $7.3B — an almost 18% decline. Admittedly, that doesn’t look great.
Then again, 2021 was no normal year for our sector and Q1 has never been a blockbuster period for funding. In the boom year that was 2021, the first quarter only saw $6.7B raised — making for a mere 10% YOY decline in 2022. Still not great. But better.
So what happens if we treat 2021 as the outlier that it probably was?
Before 2021 smashed every record in the sector, 2020 was the record-breaking healthcare IPO boom time. Digital health funding in Q1 2020 exceeded what was raised in the same quarter of the previous two years combined. Year over year, 2020 was 76% up from 2019.
Now let’s try a fun little thought experiment.
Imagine if we could fold time so that Q4 2020 would tail seamlessly into Q1 2022. How would things look then? For one thing, Q1 2022 would be up 76% from the same period in 2020 — $6.0B to $3.4B — having reached nearly 50% of the total funding raised in 2020 in just the first quarter of 2022. Interesting?
There have also been more healthcare IPOs in 2022 than during the same period of 2020. Granted, it’s still nowhere near the scale of the 2021 IPO boom. But that’s exactly the point — is it really a fair comparison?
Of course, we can’t fold time and the funding raised in 2021 is too big a gorilla to ignore. Those are high stakes to be sure and investors will expect to recoup.
All of this to say that, despite everything, the sector outlook is still strong. It’s just going to take some patience and nimble execution for the investments of 2021 to pay out as we hoped.
DON’T CALL IT A COMEBACK
There’s nothing to come back from.
If Q1 2022 is a bit of a reset, the rest of the year could yet build up to another surge. Or it could be the pointy end of a longer period of reappraisal and refocusing. Either way, far from being bleak, the road ahead for Healthcare and the Life Sciences will remain a long and successful one.
There were always going to be winners and losers from the 2021 IPO cohort, same as any other time. It’s just on a different scale. That may mean more losers, bigger losses. But it also means that there will be winners. And those wins are likely to be bigger — not only financially but in societal impact as well.
The recent wave of layoffs in the sector may seem to belie that positive outlook. But layoffs are nothing new for healthcare startups. About 1 in 10 biopharma startups survive in any given year. If the attrition rates seem higher in 2022, it’s because the pool of life sciences startups is larger than at any time in history.
A more telling measure of the sector’s health would be the continued demand for new hires, especially for executive leaders. Even as redundancies increase, the race to fill open roles remains a challenge, with competition for top executive talent at an all-time high.
Rarely have such significant layoffs happened at the exact same time that the industry is undergoing a rapid expansion. It can be unsettling but it’s not all bad. Downsizing and restructuring are pivoting strategies, signs of an organization’s will to survive, even in unpredictable times.
Though a repeat of 2021 isn’t likely (at least not in the short term), it’s not impossible. And there’s still a good chance that 2022 could at least show the steady YOY gains of the previous decade (ignoring the anomaly of 2021).
The exuberance for the sector as a whole isn’t misplaced. If it got a little overheated in 2021, that’s simply proof of the potential we all know is there.
“Health Care in the Crystal Ball,” The Bedford Group, 2021
Kelly McCain “Biggest Healthcare Shifts We’ll See in 2022 as per Experts,” World Economic Forum, 2022
“Biotech IPO Calendar,” BioPharmCatalyst, 2022
“Harris Poll COVID-19 Tracker Wave 109” The Harris Poll, 2022
Eric Minuskin, “Global IPO Market Experiences Significant Slowdown in Q1 2022,” EY, 2022
Elisabeth Braw, “What the Ever Given Taught the World about Supply Chains,” Foreign Policy, 2021
Jason Mast, “For Biotech, Russian Invasion of Ukraine Threatens to Upend a Slew of Early-Stage R&D Projects,” Endpoints News, 2022
Amber Tong, “ No More Business as Usual: Pfizer, Bayer and Sanofi Step up Actions against Russia …,” Endpoints News, 2022
Peter S. Goodman, “A Normal Supply Chain? It’s ‘Unlikely’ in 2022,” The New York Times, 2022,
James R. Solloway, “The New World (Dis)Order,” SEI, 2022,
Gené Teare, “Global Venture Funding Fell Last Quarter for the First Time in a …,” Crunchbase News, 2022
Shrey Aggarwal, “H1 2020 Global IPO Report: Health Technology Takes the Stage during the Global Pandemic,” Factset.com, 2020
Kyle LaHucik, Max Bayer, and Annalee Armstrong, “‘Stay Alive’: Wave of Layoffs Crashes into Biotech Startup Inferno,” Fierce Biotech, 2022
“Q1 2022 Digital Health Funding: Staying the Course in Choppy Waters,” Rock Health, 2022