Report details spiked jump in venture capital life science investments
By Mia Burns (mia.burns@ubm.com)
During the second quarter of 2013, venture capitalists invested $1.8 billion in 174 life sciences deals, according to a new MoneyTree report from PwC and the National Venture Capital Association for the life sciences sector based on Thomson Reuters data. Compared to the second quarter of 2012, a sharp increase of 26 percent in dollars invested occurred during the second quarter of this year. The increase is notable as deal volume slipped seven percent compared to the first quarter of 2013. However, the trend was positive in both aspects with a 12 percent increase in dollars invested and a two percent increase in the number of deals recorded.
Some of the other key takeaways from the report include life sciences having three deals in the top 10 venture capital deals for the quarter. In addition, executives say that San Francisco Bay, Washington Metroplex, Boston, New York Metro, and San Diego Metro received the most funding during the second quarter of 2013. Initial investments more than doubled and follow-on funding increased by 17 percent compared to the same period a year ago.
“The San Francisco region - including Berkeley and San Jose – accounted for the most funding, both in Q2 2013 and historically,” says Greg Vlahos, life sciences partner at PwC. “The robust venture industry in the Bay Area and the ever-growing community of entrepreneurs continue to make Silicon Valley the recipient of a large portion of funding in both the IT and Life Sciences sectors. Areas that have a strong concentration of medical research facilities, including those at universities, also tend to draw more life sciences funding.” According to the report, the leader, San Francisco Bay, received $504 million, with $346 million going into biotechnology and the remaining $159 million going into medical devices.
Regarding the sharp increase in venture capital funding, Vlahos told Med Ad News Daily, “The pick-up in early-stage funding bodes well for the continued strength of the sector going forward. The sharp increase in venture capital in biotech this quarter is most likely a result of the liquidity we’ve seen in the biotech space. An increase in initial public offerings, as well as an active M&A market allows venture capitals to cash out of prior investments, freeing up both time and money to invest in new companies.”
The high costs associated with R&D are well known throughout the pharma industry along with the challenges such costs pose to companies. “During the second quarter of 2013, biotechnology funding increased by 68 percent to $1.3 billion compared to the same quarter of 2012,” Vlahos says. “The deal volume also increased by 5 percent to 103 deals compared with the second quarter of 2012. Biotechnology’s share of life sciences venture increased to 70 percent compared with 62 percent recorded in the previous quarter. Pharma companies need to fill their development pipelines, and they often use acquisition as a means to achieve it. Increased liquidity (IPO or M&A) in the sector is an encouraging sign for venture capitals looking to make investments. This provides opportunities for entrepreneurs with great ideas to obtain the funding they need to advance their companies to the next level, making them more attractive for either an IPO or an M&A event.”
As detailed in the report, venture capitalists invested $6.7 billion in 913 deals in the second quarter of 2013, according to Thomson Reuters and National Venture Capital Association. “In many ways it feels like the late 1990s, with information technology driving venture investment and significantly outpacing other sectors when it comes to level of activity and momentum,” said NVCA President Mark Heesen. “The difference, however, is where we go from here. There will be no tech bubble. IT investing will continue to be the bedrock of the venture industry – but at sustainable levels. Life sciences investments are poised for a slow and steady recovery, provided we can continue to see progress on the regulatory front. And as clean energy continues to evolve from a capital-intensive to a capital-efficient model, it is clear that the venture industry is responding to the market forces at work.”
In response, Vlahos told Med Ad News Daily, “IT investing continues to be the bedrock of the venture industry. The increase in early-stage investing is an encouraging sign that entrepreneurs with innovative ideas can get the funding they need to succeed. As the exit window continues to open, we’ll continue to see venture capitals shifting their focus back to companies in the earlier stages of development. In particular, startups that are able to drive innovation by developing disruptive technologies that are easy to deploy and deliver ongoing value to the user will be of great interest to venture capitalists. At this point, with the underlying recovery and returns staying strong, we don’t see anything that will drive the numbers significantly up or significantly down. If the market remains hot, we could approach the $27 billion invested in all of 2012.”
During the second quarter of 2013, venture capitalists invested $1.8 billion in 174 life sciences deals, according to a new MoneyTree report from PwC and the National Venture Capital Association for the life sciences sector based on Thomson Reuters data. Compared to the second quarter of 2012, a sharp increase of 26 percent in dollars invested occurred during the second quarter of this year. The increase is notable as deal volume slipped seven percent compared to the first quarter of 2013. However, the trend was positive in both aspects with a 12 percent increase in dollars invested and a two percent increase in the number of deals recorded.
Some of the other key takeaways from the report include life sciences having three deals in the top 10 venture capital deals for the quarter. In addition, executives say that San Francisco Bay, Washington Metroplex, Boston, New York Metro, and San Diego Metro received the most funding during the second quarter of 2013. Initial investments more than doubled and follow-on funding increased by 17 percent compared to the same period a year ago.
“The San Francisco region - including Berkeley and San Jose – accounted for the most funding, both in Q2 2013 and historically,” says Greg Vlahos, life sciences partner at PwC. “The robust venture industry in the Bay Area and the ever-growing community of entrepreneurs continue to make Silicon Valley the recipient of a large portion of funding in both the IT and Life Sciences sectors. Areas that have a strong concentration of medical research facilities, including those at universities, also tend to draw more life sciences funding.” According to the report, the leader, San Francisco Bay, received $504 million, with $346 million going into biotechnology and the remaining $159 million going into medical devices.
Regarding the sharp increase in venture capital funding, Vlahos told Med Ad News Daily, “The pick-up in early-stage funding bodes well for the continued strength of the sector going forward. The sharp increase in venture capital in biotech this quarter is most likely a result of the liquidity we’ve seen in the biotech space. An increase in initial public offerings, as well as an active M&A market allows venture capitals to cash out of prior investments, freeing up both time and money to invest in new companies.”
The high costs associated with R&D are well known throughout the pharma industry along with the challenges such costs pose to companies. “During the second quarter of 2013, biotechnology funding increased by 68 percent to $1.3 billion compared to the same quarter of 2012,” Vlahos says. “The deal volume also increased by 5 percent to 103 deals compared with the second quarter of 2012. Biotechnology’s share of life sciences venture increased to 70 percent compared with 62 percent recorded in the previous quarter. Pharma companies need to fill their development pipelines, and they often use acquisition as a means to achieve it. Increased liquidity (IPO or M&A) in the sector is an encouraging sign for venture capitals looking to make investments. This provides opportunities for entrepreneurs with great ideas to obtain the funding they need to advance their companies to the next level, making them more attractive for either an IPO or an M&A event.”
As detailed in the report, venture capitalists invested $6.7 billion in 913 deals in the second quarter of 2013, according to Thomson Reuters and National Venture Capital Association. “In many ways it feels like the late 1990s, with information technology driving venture investment and significantly outpacing other sectors when it comes to level of activity and momentum,” said NVCA President Mark Heesen. “The difference, however, is where we go from here. There will be no tech bubble. IT investing will continue to be the bedrock of the venture industry – but at sustainable levels. Life sciences investments are poised for a slow and steady recovery, provided we can continue to see progress on the regulatory front. And as clean energy continues to evolve from a capital-intensive to a capital-efficient model, it is clear that the venture industry is responding to the market forces at work.”
In response, Vlahos told Med Ad News Daily, “IT investing continues to be the bedrock of the venture industry. The increase in early-stage investing is an encouraging sign that entrepreneurs with innovative ideas can get the funding they need to succeed. As the exit window continues to open, we’ll continue to see venture capitals shifting their focus back to companies in the earlier stages of development. In particular, startups that are able to drive innovation by developing disruptive technologies that are easy to deploy and deliver ongoing value to the user will be of great interest to venture capitalists. At this point, with the underlying recovery and returns staying strong, we don’t see anything that will drive the numbers significantly up or significantly down. If the market remains hot, we could approach the $27 billion invested in all of 2012.”
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