Venture capital (VC) funding in the life sciences sector increased 21% during 2011, according to a PwC  report, with a total of $7.5 billion going into 785 life sciences deals during the year.

The report 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% in the fourth quarter of 2011 to $1.7 billion. Deal volume was also down, dropping 4% compared to the prior quarter to 184 deals. When compared to a year ago, dollars invested into life sciences companies during the fourth quarter of 2011 increased by 34% while the number of deals declined 5% 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 the fourth quarter, an increase of 19% in dollars and a drop of 2% in 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% in the fourth quarter, a 3% increase from the fourth quarter of 2010.

“Life sciences investments in the fourth quarter outperformed total venture investment, when compared with the same quarter of 2010," says 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 the fourth quarter of 2011. Biotechnology accounted for 72% of funding, while medical devices claimed 28%, due to a $265 million drop in dollars invested in the sector. In comparison, during the third quarter of 2011, biotechnology captured 60% of investment in the sector and medical devices accounted for 40%.

In 2011, biotechnology investing grew by 22% in dollars but declined 9% 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%, 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% 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.

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% in the number of companies but a 41% 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,” adds 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."

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%, 138%, and 75%. The human biotechnology subsegment captured the largest share in the fourth quarter with $891 million going into 68 deals, an 11% increase in deals from the fourth quarter of 2010.

Funding for two of the three medical device subsegments increased in the fourth quarter of 2011. Investments in the medical therapeutics and medical/health subsegements increased 29% and 19% in dollars. The medical therapeutics category accounted for 72% of the dollars and 66% of the deals in the fourth quarter with $360 million going into 48 deals.

Release Date: Feb. 2, 2012
Source: PricewaterhouseCoopers