$8.1B has been invested across 800 Mass. healthcare deals in the last five years. This guide details the most active investors, most well-funded private companies and investment trends in Massachusetts' healthcare.

Massachusetts has thrived as the nation’s most prominent hub for healthcare and medical services and so too has the state’s market for healthcare-related startups. Last year, private life science companies in Massachusetts took in almost $2 billion in financing. A wide range of healthcare industries attracted financing, from biotechnology to medical devices, and IPOs were over 1/4 of the state’s healthcare exits in 2013.

This deep dive provides an in-depth look at the healthcare financing landscape in Massachusetts as well as the investors and companies fueling the Massachusetts healthcare startup ecosystem.

This analysis includes private company investments in Massachusetts by venture capital firms, corporations, corporate venture investors, hedge funds/mutual funds, angels, incubators and accelerators. Debt, grants and lines of credit were not considered in this dataset.

Specifically this report will cover:

Funding into Massachusetts healthcare companies grew to $1.8B in 2013, up from $1.3B in 2009. Deal activity is up 34% versus 2009 with 147 healthcare-related deals in the state last year compared to 110. Although close, financing and deal activity hasn’t returned to its 2011 highs.

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On a quarterly basis, funding levels have been volatile since 2009 which is expected given the existence (or lack thereof) of a handful of large deals can greatly impact funding levels within healthcare. However, on the deal activity side, we’re seeing an erratic but generally upward trend. More recently, quarterly funding has trended upwards with several 500M+ financing quarters in the past year. Q2 2011 sticks out as an outlier due to it being a quarter with a number of mega-financings including the $101M Series B round of Tesaro, a Lexington-based biopharma company, the $91M Series A round by Radius Health, and the $77M growth equity raise for Merrimack Pharmaceuticals. All three biopharma companies have had IPOs since.

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Funding goes later stage; early stage deals remain healthy

Funding has been shifting a bit from early- and mid-stage rounds to later stages as previously funded companies have matured. Late stage funding (Series D+) comprised a third of total financing of Massachusetts healthcare companies last year, compared to around 15% in 2010.  Of note, Series A funding share to healthcare companies fell for the second consecutive year in 2013 to 25%.

 

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Deal activity in Massachusetts healthcare has remained largely range-bound over the past five years. Early-stage (Seed and Series A) deals have consistently garnered the largest % of share, followed closely by mid-stage (Series B and C) investments highlighting the solid pipeline of early stage healthcare companies in the state.

 

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Financing Trends by Industry

Drug and pharmaceutical companies, mostly involved in drug development, testing, and pharmaceutical research, have taken between 40-60% of all funding over the past five years. Medical device and biotechnology oriented companies rake in most of the remaining funds. Other industries such as healthcare and medical services account for less than 10% of financing.

 

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On the deal front, medical device companies in Massachusetts have been notched a higher share of deals than pharma companies in three of the past five years.

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Comparing Cambridge vs. Boston

Investigating trends among some of Massachusetts’ most active healthcare startup hubs, we found that Cambridge and Boston are among the state’s busiest cities. Together, they took in almost 50% of healthcare financing and 38% of funding deals over the past five years.

After hitting a peak of almost $900M in funding in 2011, due in part to funding rounds to Radius Health and Merrimack Pharmaceuticals (mentioned previously), Cambridge healthcare startups have since seen a decline in deal activity approaching 2009/2010 levels. Overall, venture financing is up 35% in the past five years.

Though still dwarfed by Cambridge in terms of funding and deal activity, Boston has seen a substantial inflow in financing in recent years. Funding to Boston healthcare startups increased over six-fold to $238M between 2009 and 2013, and deal activity tripled in the same time

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The Most Well-Funded Massachusetts Healthcare Startups

The ten most well-funded, still private Massachusetts healthcare companies have raised an average of $160M in financing over six financing rounds. ConforMIS, topping the list with $242M in funding since 2004. The company develops medical devices for osteoarthritis treatment and is based in Burlington, MA. Some of ConforMIS’s key backers include Aeris Capital, AGC Equity Partners, and the Sovereign Fund of Kuwait.

Flagship Ventures-backed Moderna, which has raised $200M in funding to date, is a pioneer in mRNA therapeutics and was named an IPO candidate and a CNBC Disruptor 50 company. Mevion Medical has received funding from Venrock and CHL Medical Partners and aims to advance cancer treatment with  its high-energy radiation therapy systems. The company recently began distributing its treatment technology in Japan.

 

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Investor League Tables

Using CB Insights Rankings capability, we compiled the most active investors in Massachusetts healthcare startups since 2009. Waltham-based and hometown hero Polaris Partners invested in 30 Mass healthcare companies in the past five years, followed closely by Third Rock Ventures and Flagship Ventures. All of the top three investors in Massachusetts healthcare are based in the state, indicating heavy local investment in the healthcare sector.

Also included in the state’s most active healthcare investors are multi-stage mega VC fund New Enterprise Associates and the corporate venture arms Novartis Venture Funds and SR One.

 

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Early-Stage Investors

Third Rock Ventures and Polaris Partners stood out as the most active investor in early-stage Massachusetts healthcare companies. Since 2009, the two firms invested in over 30 companies at the Seed or Series A stage.

Early stage investment is driven as might be expected by local investors. 11 of the 14 firms below are based in Massachusetts. Corporate financing was also prominent, with early-stage investments by Fidelity Biosciences, SR One (GlaxoSmithKline), Novartis Venture Funds, and Johnson & Johnson Development. While angel investors are not included in the league tables, Launchpad Venture Group, Mass Medical Angels, and Boston Harbor Angels are among the most active at the early-stage.

 

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Mid-Stage Investors

Again, Polaris Partners and Third Rock Ventures ranked as the most active mid-stage healthcare startup investors over the period. Cambridge-based Flagship Ventures was a close third.  All are following on into existing companies.

Mid-stage investment was again heavily local, with 9 of the 13 firms below based in Massachusetts. Fidelity Biosciences, Novartis Venture Funds, and SR One again appeared as the most active mid-stage corporate VC investors.

 

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Late-Stage Investors

In late-stage healthcare startups, Polaris Partners, Flagship Ventures, and MPM Capital were the most active investors. The three companies, all based in Massachusetts, funded over 20 companies in a Series D round or later.

Only five of the nine investors below are based in Massachusetts, indicating that more mature companies are able to attract more out-of-state financing than are younger startups. Novartis Venture Funds was the only late-stage corporate VC to make the list below.

 

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Exit Trends

Massachusetts’ healthcare sector has seen a rise in exits in the past three years. In addition, the share of exits that are IPOs has also increased. Healthcare exits per year have increased 60% since 2011, and the sector saw nine companies make initial public offerings in 2013.

Some of the state’s most prominent healthcare IPOs include Flagship Ventures-backed Agios Pharmaceuticals, KPCB and Google Ventures-backed Foundation Medicine, and Delphi Ventures-backed Karyopharm Therapeutics. Each went public in 2013.

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MPM Capital topped our list of investors with most exits, with 10 Massachusetts-based healthcare companies exiting since 2009 – half of which were IPOs. Flagship Ventures and Third Rock Ventures were a close second and third. MPM and Third Rock are based in Boston, while Flagship Ventures is based in Cambridge.

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All of the data underlying this analysis of Massachusetts healthcare is available in the CB Insights private company financing and exit database. Create a free account below.