Life Sciences Venture Capital Investment Level Rebounds in Q1 2011 but Deal Volume Declines, According to the MoneyTree Report

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May 04, 2011, 08:00 ET

NEW YORK, May 4, 2011 /PRNewswire/ -- Venture capital (VC) funding in the Life Sciences sector, which includes the Biotechnology and Medical Device industries, recovered in terms of dollar investments during the first quarter of 2011, according to a new PwC US report, "A Case for Cautious Optimism." The report includes data from the PricewaterhouseCoopers LLP/National Venture Capital Association MoneyTree™ Report, based on data from Thomson Reuters.

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Venture investment for the Life Sciences sector grew by 7 percent in dollars year over year to $1.4 billion. Deal volume, however, declined 8 percent compared to the first quarter of 2010, dropping to 164 deals in Q1 2011. The quarterly deal count represents the lowest number in a single quarter since the first quarter of 2009.

"The first quarter investment total sets us on a path for a solid level of investing in 2011. While we did see a drop in deal volume, the dollar investment remains strong," noted Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC. "Venture funds are expected to continue being cautious about investing in life sciences as the economic recovery progresses, but their stated interest in the sector is long term. They recognize the potential of an industry that is only beginning to embark on a new era of personalized medicine to deliver more effective and targeted treatments that could improve the health of millions of people in all regions of the world."

During the first quarter of 2011, the share of Biotechnology investments decreased to 57 percent, while the Medical Device industry's share increased to 43 percent. Compared with the first quarter of 2010, the investment split remained unchanged.

For all sectors, venture capitalists invested $5.9 billion in 736 deals in Q1 2011, a 14 percent increase in dollars and an 6 percent decrease in deals, compared to $5.2 billion going into 787 deals in Q1 2010. The Life Sciences share of total venture capital dollars invested slipped slightly to 24 percent in the first quarter of 2011 from 25 percent in the first quarter of 2010.

In Q1 2011, Biotechnology investing grew by 5 percent in dollars but dropped 21 percent in deals year over year with $784 million going into 85 deals. Medical device investments increased 9 percent in dollars and 11 percent in deals in Q1 2011, compared to the same quarter a year ago. With $602 million going into 79 deals, the Medical Device industry ranked behind Software, Industrial/Energy, and Biotechnology in dollars invested.

First-Time Financing

During the first quarter of 2011, 35 Life Sciences companies received venture capital funding for the first time, capturing $129 million. This represents a sharp decline of 40 percent in the number of companies and a 46 percent drop in dollars invested compared to the first quarter of 2010. First-time deals in the Life Sciences sector averaged $3.7 million in the first quarter of 2011, compared with an average deal size of $6.1 million in the first quarter of 2010.

"First-time funding is expected to remain challenging for the sector, with fewer deals and smaller deal size for fledgling companies," Lefteroff observed. "Lengthy and costly R&D and uncertainty in the regulatory approval process continue to drive more investors toward follow-on and later-stage deals with companies that are closer to successful product launches or the exit market," he continued.

Funding by Subsegment

Four of the seven Biotechnology subsegments exhibited growth in the first quarter of 2011 compared to the first quarter of 2010. Dollars invested in the Biotech Research, Biotech Industrial, Biotech Equipment, and Biotech Human subsegments rose 158 percent, 89 percent, 7 percent and 4 percent, respectively. The Human Biotechnology subsegment captured the largest share in the first quarter with $493 million going into 54 deals, a 4 percent increase in dollars and a 16 percent decrease in deals from Q1 of 2010.

Funding for two of the three Medical Device subsegments increased in Q1 2011, compared with the same quarter of 2010. The Medical Therapeutics category accounted for nearly two-thirds of the dollars and 62 percent of the deals during the first quarter with $391 million going into 49 deals. This represents a 26 percent increase in deals and a 30 percent increase in dollars compared to the first quarter of 2010.

Investments by Region

The top five metropolitan regions receiving Life Sciences venture capital funding during Q1 2011 were San Francisco Bay ($381 million), New York Metro ($190 million), Boston ($182 million), San Diego Metro ($82 million), and North Carolina Research Triangle ($68 million). Investments in Biotechnology deals accounted for 76 percent of the dollars invested in the top five regions in Q1 2011.

Three of the top regions experienced increases in funding on a year-over-year basis during the first quarter of 2011. New York Metro received $93 million more venture capital funding than the same period of the previous year, and the region recorded the highest year-over-year increase among metropolitan regions.

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/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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SOURCE PwC