For the past decade, biotech investing has offered highly defined value-creation opportunities, tried-and-true pathways to IPOs, M&A optionality, and well-understood business models, naturally positioning itself as an attractive sector for venture funding.

However, the COVID-19 pandemic has fueled interest in under-valued, niche categories of the healthcare industry. Life-science tools and diagnostics (LST&D) are particularly in focus, as the pandemic has highlighted the need for technologies that can quickly and accurately characterize complex biological substances.

Often overlooked and historically marginalized, LST&D players had never garnered the degree of interest and appreciation enjoyed by biotechs, despite serving as the R&D and quality-control backbone for countless unicorns and industry at-large.

Exit values in LST&D companies continue to rise steadily, from $1B in 2017 to $6.9B for only the first half of 2020¹, and publicly traded LST&D companies, particularly in the tools sector, have consistently outperformed the S&P 500 for the past several years. The sector has been gaining prominence thanks to some stellar financings from 10x Genomics, Guardant, Berkeley Lights, and Adaptimmune and several billion-dollar deals from Agilent/BioTek, Thermo/Brammer, and Invitae/Archer. This emergence is creating a platform for exciting investment opportunities that will allow for biotech-like returns with less of the binary risk typically associated with clinical development.

What is driving this transformation from sleepy segment to media darling? Is it simply an abundance of capital, now finding its way to marginal opportunities? Or is more fundamental progress in product offerings and market needs spurring value creation? The answer is not over-allocation of capital, but rather a technological megatrend called “Omics.”

Omics is to LST&D what biotech and monoclonal antibodies were to pharma in the 1990s and early 2000s: a way to reposition the industry on the heels of significant technological advances. A suffix added to the study of genes (“genomics”), proteins (“proteomics”), metabolism (“metabolomics”) and – voilà – we confer a sense of branding that integrates the traditional scientific fields of biology and chemistry with tech’s Big Data, AI, and quantum computing.

But this is far more than a mere rebranding; not only are we reshaping how we diagnose and treat disease, we are pushing companies to infuse tech-like business models, such as SaaS, into biology to create new IPs and to establish new regulatory standards that extend product lifecycles.

The impact of LST&D companies cuts across the healthcare value chain and is revolutionizing delivery of patient care. Omics promises to put behind us many of the traditional, now obsolete tradeoffs confronted by the industry: accuracy or cost, speed or resolution, sensitivity or specificity. In the process, it is driving significant progress in personalized and preventive care and improving success rates for important clinical trials.

On the discovery side, emphasis has shifted from single biological discoveries to technologies that map and resolve entire biological systems. Illumina, through its next-generation sequencing technology, and sample-prep specialists like 10x Genomics, have liberated genomics by bringing down the cost of genetic sequencing from a million dollars per genome in 2008 to under a thousand dollars today. We believe that Seer and others can do for proteomics what Illumina did for genomics: emancipate it from a slow and tedious process to a streamlined workflow, allowing for efficient and unbiased protein discovery that will revolutionize how we understand and treat disease.

In development and production, Omics allows us to test faster, kill faster, and adjust faster. Recent advances by LST&D companies such as MOBIlion and Bruker enable scientists to study glycomics and lipidomics at previously unattainable levels of resolution and speed, overcoming the traditional tradeoff between speed/volume and safety/accuracy. Development and quality-control labs will be able to separate and analyze the smallest, but often critical, components of challenging and clinically significant molecules, while shrinking analytical cycle times by over 75%.

Positioned closer to patients, LST&D companies are helping advance the field of personalized medicine. When it comes to early disease screening, today’s liquid-biopsy technologies struggle to achieve high rates of sensitivity and specificity. Either they are very sensitive at detecting presence of the disease, but in the process report many false positives (thereby overwhelming the system); or they are “tuned” to weed out false positives, but in the process, miss too many people with disease.

We believe the way forward is to raise the bar. One way is via a “smart” multi-omics/multi-analyte approach that will shift the curve and remove the seemingly insurmountable tradeoff between improved sensitivity and specificity. We need both, and innovations from LST&D companies can help get us there.

We are excited to see the dawn of the Omics era and the emergence of the LST&D industry. Challenges remain, but the sector has strong fundamentals, a wealth of innovation, and investment options that open the doors for compelling M&A and IPO opportunities in the years to come.

¹ SVB Mid Year Report 2020: Healthcare Investments & Exits

Todd Sone is a Partner at aMoon, where he brings 20 years of healthcare investment experience as a sell side analyst, LP and buy side investor to co-lead our late-stage team. Todd sits on the boards of Ayala Pharmaceuticals (AYLA), Biolojic Design, MOBILion, Smart Medical Systems, our stealth mode genomics company and Theranica.