Number of Dx Private Financing Deals Rose 25 Percent in 2024, Continued Rebound Expected in 2025

NEW YORK – Following a barren financing market in diagnostics resulting from the COVID-19 pandemic, private financing in the space rebounded in 2024.

Last year, 360Dx reported on 54 private financing investments in the space, up 25 percent from the 43 financings reported on in 2023. There were also more large investments, with five financing rounds and four companies raising $100 million or more, paced by liquid biopsy firm BillionToOne, which had the two largest raises of the year, a $130 million Series D round and a $140 million financing agreement with Oberland Capital Management.

In 2023, the largest private financing was Harbinger Health's $140 million Series B round — the only financing above $100 million that year.

Rounding out the other four largest financing rounds in 2024 are proteomics company Alamar Biosciences' $128 million Series C funding round, Karius' and Cytovale's $100 million raises, and early cancer detection firm Cleveland Diagnostics' $75 million private financing.

During the early years of the pandemic, investors flocked to diagnostics companies as interest ran high in companies developing tests to detect and diagnose not only the SARS-CoV-2 virus but other ailments, as well. But as the disease became more manageable, that interest evaporated, and so did private investments in diagnostic firms.

Along with investor disinterest in COVID-19 testing, the early influx of government cash into the diagnostics industry slowed. However, 2024 has indicated a potential turning of the tide, leaving industry insiders optimistic for 2025. 

Arthur Wong, healthcare managing director at S&P Global Ratings, said that he has seen a surge of private financing into healthcare and diagnostics, partially due to the lack of a market for initial public offerings. Healthcare has been one of the top areas of investment for private equity firms, and the difficulty in exiting with an IPO may have contributed to the increase in private financing rounds.

Private financing in 2025 will continue to be impacted by the IPO market and whether there are "other avenues" that may be more attractive from a funding perspective than private financing, he noted.

"I think private financing's role is still going to be pretty significant because there are still companies and opportunities and the deals have to be done," Wong said. "It's not coming through the public debt market or the IPO market at this point."

Daniil Kalyuzhny, managing director of healthcare investment banking at BTIG, said that he is more optimistic for 2025 for private financings because investors have recognized that many diagnostics companies have low valuations, making them particularly attractive, although he declined to name specific firms.

Investors "think that this is a good entry point, especially as they try to differentiate their portfolios outside of biotech and pharma and medtech," he said. It's an "attractive time for them to invest in diagnostics depending on the valuation."

In addition, many smaller companies are short on cash and their boards and executive teams have realized that raising money is particularly difficult right now, so Kalyuzhny said they are more "reasonable and realistic" about their valuations and willing to accept flat rounds — funding rounds in which a company's valuation remains the same as its previous round — in order to fund their existing portfolios.

He noted that several venture capitalists are "sitting on a bunch of [capital]" and thinking about how to invest that capital into tools and diagnostics, which may lead to more private financing transactions in 2025.

Kalyuzhny emphasized that investors have shown significant interest in oncology, neurology, and women's health and that he expects those business areas to see additional interest this year. Oncology typically has attractive reimbursement rates with "really large addressable markets" that continue to draw investors, while neurology has a "dearth of assets" but exciting addressable markets that get investors excited for unique opportunities. Two of the companies with the largest private financing rounds in 2024, BillionToOne and Cleveland Diagnostics, have cancer tests either in development or on the market. 

Women's health, meantime, has an already developed market with very little risk, but if there are companies that can disrupt the way testing is done, the tests themselves have "really attractive margins," Kalyuzhny said.

Christoph Brandenberger, managing director at investment bank Brown Gibbons Lang and Company, echoed Kalyuzhny's interest in neurology and neurocognitive diseases, noting that interest in the area has been driven by pharmaceutical companies developing drugs for conditions like Alzheimer's disease and Parkinson's disease.

Companies like Sunbird Bio, Amprion, and C2N Diagnostics have received millions of dollars in funding to further development and commercialization of their tests for neurocognitive diseases. In October, Sunbird Bio raised $14 million in one financing round, while Amprion closed the initial $6 million of a planned $15 million Series B financing round the same month.

C2N Diagnostics, meanwhile, received an investment of up to $15 million from Eisai in March, in addition to $15 million from the GHR Foundation and $7 million from the Alzheimer's Drug Discovery Foundation in September.

Brandenberger also mentioned epigenetics as a "really interesting play into extremely early cancer diagnostics" that could be an area for venture capital firms to invest.

Investors are also focused on companies that have products nearing commercialization or those with attractive earnings before interest, taxes, depreciation, and amortization (EBITDA) profiles and are nearing EBITDA positivity, Kalyuzhny said. They "want everything de-risked outside of [a] commercial launch" and are looking for firms that have scalability, he added. If companies still need to obtain regulatory approval or if there's still technical risk with their product, investors are less likely to be interested.

"If you've gotten those things lined up and you're about to launch commercially, I would say that's probably the best opportunity," Kalyuzhny said.

In addition, companies with unique business models that could drive "really exciting top-line growth while also providing the investors with really strong EBITDA margins" are of particular interest, he said.

In Kalyuzhny's view, investors are "fairly tech-agnostic" when it comes to underlying technologies and care more about reducing the cost of goods sold (COGS) and matching whatever the benchmark is for accuracy of the assay. They care about whether there is a "way that the technology has been developed or manufactured that would reduce COGS to a best-in-class concept," rather than focusing specifically on one type of technology.

As for the incoming presidential administration, Kalyuzhny said that if Robert F. Kennedy Jr. is appointed head of the US Department of Health and Human Services, diagnostics may see even more investment interest. Kennedy has emphasized the importance of preventive medicine, which "is effectively what diagnostics is," Kalyuzhny said. "I think if there's more headwinds for biotech and pharma," tools and diagnostics firms will be a good bet because of the lower valuations and preventive medicine feature, he added.

However, he noted that right now, it is "too soon to tell" exactly what impact the new presidential administration will have.