Life science investment outlook: thinking beyond the pandemic

Monday, December 12, 2022


As the economy emerges from the series of shocks brought on quickly and unexpectedly when the pandemic hit two and a half years ago, analysts and investors alike are groping to define the “new normal” for financial markets.

This struggle is particularly true for the life science sector, which saw investment stall and then soar during the pandemic’s first years. But by the start of 2022, the Nasdaq Biotech Index was continuing its decline from an all-time high posted in August 2021. Private investment followed suit in the second quarter when venture investment in life science companies tumbled quarter over quarter.

So, what happens next? Some expect the value of life science companies will continue to decline based on numbers in the first half of 2022, but by extending our perspective back a decade, a different potential scenario emerges.

Where we’ve been

Going back about 10 years, the life science sector was finally coming of age. With proven science and many successful companies with products on the market, the investment dynamic had changed. Investors were less and less betting on the long-term potential of unproven technologies. Life science companies could increasingly be evaluated by conventional investment metrics and, as a result, attract the attention of generalist investors.

Starting in 2014, venture investment in life sciences climbed consistently. It took off in 2020 and continued to soar in 2021. The first quarter of 2022 showed a modest increase over the final quarter of 2021. At the same time, the IPO window opened wide, creating opportunities for companies with product revenue as well as for some early-stage companies that in less bubbly times would not be considered ready for a public listing.

Public and private investment in biotech companies reached an all-time high of $105 billion in 2020 and 2021, according to a report by EY. In 2021, public company revenue surged by 35%. This kind of growth is often driven by market hype that creates a fear-of-missing-out mentality and is never sustainable. Additionally, there were some once-in-a-lifetime forces that helped fuel this particular boom.

For the past two and a half years:

  • The public has had a crash course in virology via the media and public officials, to the point of making the science that drives life science innovation more accessible to generalist investors.
  • The spotlight shone on mRNA vaccines, a technology that has been in the works for 20 years, proving them to be more effective and easier to tweak than vaccines made through conventional means.
  • The public sector poured in unprecedented resources and money (all told, more than $100 billion on vaccines alone in 2020 and 2021).
  • Shelter-in-place orders helped turbocharge the emerging space of telehealth and remote health tech, which have proven themselves to be valuable tools to increase access for patients and improve productivity for providers even as the pandemic wanes.

Newfound visibility made investments in life science companies more accessible to generalist investors, but some strong fundamentals were also at play.

For more insights on the investment landscape for early-stage and late-stage companies, download our report

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