Venture capital (VC) funding in the Life Sciences sector, which includes the Biotechnology and Medical Device industries, leapt 37 percent during the second quarter of 2011, according to a new PwC US report, "High-dollar deals." The report includes data from the PricewaterhouseCoopers LLP/National Venture Capital Association MoneyTree™ Report, based on data from Thomson Reuters.
Venture capitalists invested $2.1 billion in 206 Life Sciences deals, delivering the seventh best quarter since the MoneyTree Report began collecting data in 1995. Despite the quarter’s strong performance, dollars invested in Life Sciences declined 3 percent when compared with the same quarter of 2010. Deal volume also decreased year over year, but by a greater margin of 21 percent. Compared with the first quarter of 2011, deal volume looked more positive, showing an increase of 12 percent.
“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. “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 Q2 2011, a 5 percent increase in dollars and a 3 percent decrease in deals, compared to $7.2 billion going into 998 deals in Q2 2010. The Life Sciences share of total venture capital dollars invested slipped slightly to 28 percent in the second quarter of 2011 from 30 percent in the second quarter of 2010. The average deal size for all industries, although not as high as life sciences, increased for the third consecutive quarter and stood at $7.8 million.
In Q2 2011, Biotechnology investing declined by 9 percent in dollars and dropped 24 percent in deals year over year with $1.2 billion going into 116 deals. Medical device investments increased 9 percent in dollars and declined 17 percent in deals in Q2 2011, compared to the same quarter a year ago. With $841 million going into 90 deals, this was the highest level of funding for the Medical Device industry since the third quarter of 2008 and the seventh highest quarterly funding during the last 16 years.
First-Time Financing
During the second quarter of 2011, 44 Life Sciences companies received venture capital funding for the first time, capturing $283 million. This represents a decline of 27 percent in the number of companies and a small drop in dollars invested, compared to the second quarter of 2010. First-time deals in the Life Sciences sector averaged $6.4 million in the second quarter of 2011, a 36 percent jump year over year and significantly higher than the average first-time deal size of $4.8 million for all industries during the quarter.
“Average first-time deal size increased by 36 percent year over year, in part, because of the longer time frames that venture capitalists believe they will need for their portfolio companies to achieve significant milestones. These milestones could lead to a window of opportunity for additional financing or an exit,” added Lefteroff.
Funding by Subsegment
Two of the seven Biotechnology subsegments exhibited growth in the second quarter of 2011 compared to the second quarter of 2010. Dollars invested in the Biotech Research and Biotech Equipment subsegments rose 216 percent and 197 percent, respectively. The Human Biotechnology subsegment captured the largest share in the second quarter with $819 million going into 70 deals, a 2 percent decrease in dollars and a 21 percent decrease in deals from Q2 of 2010.
Funding for two of the three Medical Device subsegments decreased in Q2 2011, compared with the same quarter of 2010 - Medical/Health Products fell 57 percent and Medical Diagnostics dropped 7 percent in dollars. However, dollars invested in the Medical Therapeutics category increased by 33 percent during the second quarter of 2011, compared to the same time a year ago. This subsegment also accounted for nearly two-thirds of the deals and more than three-fourths of the dollars during the second quarter of 2011 with $655 million going into 59 deals.
Investments by Region
The top five metropolitan regions receiving Life Sciences venture capital funding during Q2 2011 were San Francisco Bay ($552 million), Boston ($441 million), Washington Metroplex ($210 million), San Diego Metro ($186 million), and Orange County ($157 million). Investments in Biotechnology deals accounted for 54 percent of the dollars invested in the top five regions in Q2 2011.
Except for San Francisco Bay, funding for the top regions increased on a year-over-year basis. During the second quarter of 2011, Washington Metroplex received $163 million more in venture capital funding than the same period of the previous year. This region also recorded the highest year-over-year increase among all the metropolitan regions at 344 percent.
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