Life Sciences Venture Capital Funding Falls 22% in Q1 2012, According to the MoneyTree Report

Medical Device venture funding accelerates during first quarter, while Biotechnology investment slows

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May 08, 2012, 09:00 ET

NEW YORK, May 8, 2012 /PRNewswire/ -- Venture capital (VC) funding in the Life Sciences sector, which includes the Biotechnology and Medical Device industries, decreased 22% during the first quarter of 2012 from the prior quarter, according to a new PwC US report, "Mixed Momentum," that includes data from the PricewaterhouseCoopers LLP/National Venture Capital Association MoneyTree™ Report, based on data from Thomson Reuters.

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Venture capitalists invested a total of $1.5 billion during the first quarter, the lowest level since the fourth quarter of 2010. Deal volume was also down, dropping 11 percent from Q4 to 171 deals. When compared to a year ago, dollars invested into Life Sciences companies during Q1 of 2012 decreased 8 percent while the number of deals declined 12 percent from the $1.6 billion invested in 195 deals during the first quarter of 2011.

For all sectors, venture capitalists invested $5.8 billion in 758 deals in Q1 2012, a decrease of 19 percent in dollars invested and a 15 percent decline in deals, compared to $6.7 billion going into 861 deals in the first quarter of 2011. The Life Sciences share of total venture capital dollars invested stood flat at 26 percent in Q1, a one percent decrease from Q4 2011.

"Venture capitalists remained cautious during the first quarter after a lackluster fourth quarter in the public markets, as evidenced by the shift from investing in earlier stage companies to a focus on later stage companies in Q1," remarked Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC.

During the first quarter, Biotechnology accounted for 53 percent of funding, while medical devices claimed 47 percent of dollars invested. In comparison, during the fourth quarter of 2011, Biotechnology captured 73 percent of investment in the sector and Medical Devices accounted for 27 percent of the total.

Biotechnology investing decreased by 43 percent in dollars and 14 percent in deals, with $780 million going into 99 deals. Despite the drop, Biotechnology ranked second in terms of overall dollars invested, second only to the Software industry. On a year-over-year basis, biotechnology investments decreased 18 percent with deals down 9 percent, with $949 million going into 109 deals during the first quarter of 2011.

Medical device investments rose 33 percent in dollars quarter-over-quarter while the number of deals dropped 6 percent during the same time period. With $687 million going into 72 deals in Q1, the Medical Device industry ranked behind Software, Biotechnology, and Industrial/Energy in dollars invested.

"A more active M&A market may be the reason that the Biotech industry experienced a decline in investing in Q1, as VCs saw more of their portfolio companies experience exits during the first quarter," remarked Lefteroff. "While on the surface, the jump in dollars invested in the Medical Device industry during Q1 may seem surprising given the 22% drop in Life Sciences funding overall, a deeper dive shows that companies in the Later stage of development accounted for more than half of the investments in this industry."

First-Time Financing

During the first quarter of 2012, 21 Life Sciences companies received venture capital funding for the first time, capturing $120 million. This represents a decrease of 53 percent in the number of companies and a 38 percent decrease in dollars invested compared to the first quarter of 2011. First-time deals in the Life Sciences sector jumped to an average of $8.6 million in the first quarter of 2012 compared with an average deal size of $8.2 million in the first quarter of 2011.

Funding by Subsegment

Two of the seven Biotechnology subsegments exhibited growth in the first quarter of 2012 compared to the first quarter of 2011. Dollars invested in the Biosensors and Biotech Industrial subsegments rose 599 percent and 14 percent, respectively. Funding for all other subsegments decreased during the first quarter. The Human Biotechnology subsegment captured the largest share in the first quarter with $621 million going into 67 deals and remained flat year-over-year in dollars and deals.

Funding for one of the three Medical Device subsegments increased in Q1 2012, with investments in the Medical Therapeutics subsegment increasing 32 percent in dollars. The Medical Therapeutics category accounted for 87 percent of the dollars and 65 percent of deals in the first quarter with $595 million going into 47 deals.

Investments by Region

The top five metropolitan regions receiving Life Sciences venture capital funding during Q1 2012 were Boston ($299 million), San Francisco Bay ($246 million), San Diego Metro ($183 million), Los Angeles ($108 million) and Great Lakes ($77 million). All of the regions recorded an increase in investment year-over-year except San Francisco Bay, which recorded a 51% decline when compared to Q1 of 2011.

Investments in Biotechnology deals accounted for 51 percent of the dollars invested in the top five regions in Q1 2012. Dollars invested in all five of the top regions remained flat in the first quarter of 2012 when compared to the same quarter of 2011.

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

PwC's Pharmaceutical and Life Sciences Industry Group (http://www.pwc.com/us/pharma and http://www.pwc.com/us/medtech) provides clients with audit, tax and advisory services. The firm has extensive experience in delivering industry-tailored solutions on a wide range of strategic, financial and operational issues. The Pharmaceutical and Life Sciences Industry Group is part of PwC's larger initiative for the health-related industries that brings together expertise and allows collaboration across all sectors in the health continuum. Follow PwC Health Industries on Twitter at http://twitter.com/PwCHealth.

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