Healthtech Dealmakers See Fresh M&A Momentum, But VC Investors Remain Cautious
Plus, speculation swirls about who's joining DOGE and how it will operate
The Main Item
A Muted J.P. Morgan Healthcare Conference Punctuated by Big M&A, Optimism on Trump
It was an unseasonably sunny week in San Francisco for the J.P. Morgan Healthcare Conference, and that warm glow could be a hopeful omen for biotech and healthtech firms that have lagged their AI-powered tech industry brethren.
A flurry of dealmaking suggests the M&A slump of the past couple of years may be ending: Johnson & Johnson announced a $14.5 billion acquisition of schizophrenia drug-maker Intra-Cellular Therapies, the biggest healthcare M&A transaction in over six years.
Several of the big pharma companies like Roche and Merck were taking meetings with early-stage healthtech startups, said Vivien Ho, a partner at Pear VC. “They're excited about those opportunities to partner on generative AI startups.”
Venture funding may be ticking up too: Andreessen Horowitz and Eli Lilly made waves with the announcement of a $500 million joint fund for investing in therapeutics companies and the broader “biotech ecosystem,” to be deployed by a16z’s Bio + Health team.
Worries about pharma critic Robert F. Kennedy Jr. potentially heading the Department of Health and Human Services were not top of mind. Ness Bermingham of Khosla Ventures said the consensus seemed to be that “the new administration would probably be good for the industry and the regulatory components will be relaxed.”
Venture funding to healthtech and biotech companies picked up slightly in 2024 compared to 2023, and though funding remained far below 2020-2022 levels, it still exceeded totals for earlier years.
Still, the PitchBook data also shows that, as in other sectors, fewer companies are getting funded: the overall number of healthtech deals fell significantly to 3,090 in 2024 compared with 3,624 in 2023, and biotech showed a similar trend with 2,229 deals in 2024, down from 2,601.
More uncertainties than usual loom over the sector. Attendees were feeling a heightened security presence in the wake of the murder of United Healthcare CEO Brian Thompson.
Pear VC’s Eddie Eltoukhy noted there were significantly more police officers around Union Square than normal, which may also be related to newly elected San Francisco Mayor Daniel Lurie’s determination to show that the city is safe.
Eleven big-name companies pulled out of the conference this year, including Cigna, Walgreens, Oscar Health, and Applied Biotherapeutics.
Investors told us that enthusiasm over generative AI for drug discovery has cooled compared with last year. Eltoukhy said that while there is still plenty of crossover interest from traditional tech VCs to the category, “VCs are maybe not so quick to put money behind a technical team on the AI side until they see their performance with respect to wet lab data.”
In short, investors in 2025 want teams that are just as skilled on the health and bio side of the problems as they are on machine learning.
That said, the hot healthcare LLM startup Hippocratic AI, which is on the machine learning side of things, announced ahead of the conference that it had locked down $141 million in Series B funding, led by Kleiner Perkins. Qventus, which boasts “AI-powered automation solutions” for the healthcare industry, said it had raised a $105 million Series D from KKR.
On the M&A side, in addition to the big J&J deal, U.K.-based pharma giant GSK announced it would acquire stomach drug maker IDRx. And Eli Lilly said it would buy Scorpion Therapeutics, which develops cancer treatments, for $2.5 billion.
A better M&A environment would ultimately trickle down to startup funding. But as in so many things at the moment, much depends on the new Administration’s approach.
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Newcomer Podcast
Biden's Drive-By Address Targeting the ‘Tech Industrial Complex’
On the podcast: It’s no surprise that President Biden may feel a bit burned after tech leaders supported Donald Trump in droves last year, but his fiery final address seemed to further fan the flames towards an industry that’s done so much to fuel American innovation. Plus, we talk about our reporting on the Canadian bookkeeping startup Bench.
00:00 — Introduction
00:19 — Biden’s Warning on the Tech Industrial Complex
10:43 — The Bench Company Controversy
19:30 — Deal of the Week: Cursor's Funding Success