Murky Picture for Life-Science Financing in Second Quarter

The second quarter of 2011 presented a mixed picture of financing for the life-science sector, which includes the biotechnology and medical-device industries. Although venture-capital funding for the sector as a whole showed strong improvement, biotechnology investing dropped in terms of overall dollars invested and number of deals.

Venture-capital funding in the life-science sector increased 37% during the second quarter of 2011, according to a recent PwC US report. The report includes data from the MoneyTree Report compiled by PricewaterhouseCoopers and the National Venture Capital Association. The MoneyTree Report is based on data from Thomson Reuters.

Venture capitalists invested $2.1 billion in 206 life-science deals, thus making the second quarter of 2011 the seventh-best quarter since the MoneyTree Report began collecting data in 1995. Despite the quarter’s strong performance, dollars invested in the life sciences declined 3% compared with the second quarter of 2010. Deal volume also decreased year over year by a margin of 21%. Compared with the first quarter of 2011, deal volume increased 12%.

“The rise in venture-capital investment going into life sciences during the second quarter can be attributed, in part, to an increase in exit activity,” noted Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC, in the PwC report. “The exit market for biotech and medical-device companies has been more active over the past year, and exit activity allows venture funds to achieve liquidity in their portfolios. This liquidity enables venture funds to return dollars to their limited partners and make additional funds available to support the rest of their portfolios.”

For all sectors, venture capitalists invested $7.5 billion in 966 deals in the second-quarter 2011, a 5% increase in dollars and a 3% decrease in deals, compared with $7.2 billion going into 998 deals in the second quarter of 2010. The life-science sector share of total venture-capital dollars invested declined slightly to 28% in the second quarter of 2011 from 30% in the second quarter of 2010.

In the second quarter of 2011, biotechnology investing declined by 9% in dollars and dropped 24% in deals year over year, with $1.2 billion invested in 116 deals. During the second quarter of 2011, 44 life-science companies received venture-capital funding for the first time, making a total of $283 million. This level of investment represents a 27% decline in the number of companies and a small decline in dollars invested, compared with the second quarter of 2010. First-time deals in the life-science sector averaged $6.4 million in the second quarter of 2011, a 36% increase year over year.

Two of the seven biotechnology subsegments exhibited growth in the second quarter of 2011, compared with the second quarter of 2010. Dollars invested in the biotechnology research and biotechnology equipment subsegments rose 216% and 197%, respectively. The human biotechnology subsegment captured the largest share in the second quarter with $819 million invested in 70 deals, a 2% decrease in dollars and a 21% decrease in deals from the second quarter of 2010.

See Related Pharm Tech Artlcles:

T. Lefteroff, “Biotech Financing Blues” Pharm. Technol.35 (7) 34 (2011).

T. Lefteroff, “Biotechnology Loses Lead in Funding” Pharm. Technol.35 (4) 38 (2011).