Life Sciences venture funding jumps 21% in 2011 but quarterly performance falls short, according to the MoneyTree Report

NEW YORK, February 2, 2012 – Venture capital (VC) funding in the Life Sciences sector, which includes the Biotechnology and Medical Device industries, increased 21% during 2011, according to a new PwC US report, "Zigzagging Upward," that includes data from the PricewaterhouseCoopers LLP/National Venture Capital Association MoneyTree™ Report, based on data from Thomson Reuters.  Venture capitalists invested a total of $7.5 billion in 785 life sciences deals during the year, topping 2010 performance despite a drop from the third to the fourth quarter of 2011.

Compared with the prior quarter, Life Sciences venture funding decreased 8 percent in Q4 of 2011 to $1.7 billion. Deal volume was also down, dropping 4 percent compared to the prior quarter to 184 deals.  When compared to a year ago, dollars invested into Life Sciences companies during Q4 of 2011 increased by 34 percent while the number of deals declined 5 percent from the $1.3 billion invested in 194 deals during the fourth quarter of 2010.

For all sectors, venture capitalists invested $6.6 billion in 844 deals in Q4 2011, an increase of 19 percent in terms of dollars and a drop of 2 percent in terms of deals, compared to $5.5 billion going into 861 deals in the fourth quarter of 2010.   The Life Sciences share of total venture capital dollars invested stood at 27 percent in Q4, a three percent increase from Q4 2010.

“Life sciences investments in the fourth quarter outperformed total venture investment, when compared with the same quarter of 2010," said Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC.  "We did see the IPO window crack slightly during the fourth quarter of 2011 and Life Sciences companies claimed three of the 11 venture-backed IPOs.  However, at this point in time, M&A deals continue to offer more exit opportunities for Life Sciences companies than IPOs."

The life sciences sector’s investment split tilted in Q4 2011. During the fourth quarter, Biotechnology accounted for 72 percent of funding, while medical devices claimed only 28 percent, due to a $265 million drop in dollars invested in the sector. In comparison, during the third quarter of 2011, Biotechnology captured 60 percent of investment in the sector and Medical Devices accounted for 40 percent.

In 2011, Biotechnology investing grew by 22 percent in dollars but declined 9 percent in deals, with $4.7 billion going into 446 deals, second only to the Software industry.  On a year-over-year basis, biotechnology investments increased 46 percent, and the number of deals was flat, with $1.3 billion going into 111 deals during the last quarter of 2011.

Medical device investments rose 20 percent in dollars from 2010 to 2011 and finished relatively flat in terms of deals. With $2.8 billion going into 339 deals, the Medical Device industry ranked behind Software, Biotechnology, and Industrial/Energy in dollars invested.

First-Time Financing

During the fourth quarter of 2011, 34 Life Sciences companies received venture capital funding for the first time, capturing $280 million.  This represents a decrease of 24 percent in the number of companies but a 41 percent increase in dollars invested compared to the fourth quarter of 2010.  First-time deals in the Life Sciences sector jumped to an average of $8.2 million in the fourth quarter of 2011 compared with an average deal size of $4.4 million in the fourth quarter of 2010.

“An increase in first-time funding may not bear fruit until several years down the road,” added Lefteroff. “The products under development by startups might not reach the market for a decade or more. Of 15 high-priority drugs approved by the FDA during 2011, 13 had roots in venture capital."

Funding by Subsegment

Three of the seven Biotechnology subsegments exhibited growth in the fourth quarter of 2011 compared to the fourth quarter of 2010.  Dollars invested in the Biosensors, Biotech Human, and Biotech Animal subsegments rose 410 percent, 138 percent, and 75 percent, respectively.   The Human Biotechnology subsegment captured the largest share in the fourth quarter with $891 million going into 68 deals, an 11 percent increase in deals from Q4 of 2010.

Funding for two of the three Medical Device subsegments increased in Q4 2011.  Investments in the Medical Therapeutics and Medical/health subsegements increased 29 percent and 19 percent in dollars, respectively.   The Medical Therapeutics category accounted for 72 percent of the dollars and 66 percent of the deals in the fourth quarter with $360 million going into 48 deals.

Investments by Region

The top five metropolitan regions receiving Life Sciences venture capital funding during Q4 2011 were San Francisco Bay ($498 million), Boston ($384 million), San Diego Metro ($193 million), NY Metro ($98 million), and Orange County ($97 million).  Investments in Biotechnology deals accounted for 77 percent of the dollars invested in the top five regions in Q4 2011.  Dollars invested in all five of the top regions increased in the fourth quarter of 2011 when compared to the same quarter of 2010.

A full copy of the report is available for download at www.pwc.com/us/lifesciencesmoneytree

About PwC's Pharmaceutical and Life Sciences Industry Group

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