Despite raising more capital year over year in 2012, venture capital firms pulled back on their investments in the life sciences sector, which comprises the biotechnology and medical device industries. According to data published by Thomson Reuters and the National Venture Capital Association, US venture capital firms raised $20.6 billion in 2012, a 10 percent increase over 2011. But a separate study by PwC US reveals that during the year venture capital firms in the US invested only a total of $6.6 billion in life sciences deals, representing a decrease of 14 percent compared with investments of $7.7 billion in 2011. The total number of life sciences deals involving venture capital firms in 2012 was also lower at 779 compared to 836 during 2011.
VC Investments Lower In Biotech, Medical Device Companies
Image: Wall Street Journal
Within the life sciences sector, biotechnology companies accounted for a larger share of venture capital investments in 2012. Total venture capital investments in biotechnology companies during the year were $4.1 billion, a drop of 15 percent from 2011. The number of deals however remained flat at 466 suggesting that the average deal size within biotech companies was smaller in 2012 compared to 2011. Within medical device companies, venture capital investments totaled $2.4 billion in 2012, a decrease of 13 percent year over year. However unlike biotech deals, the number of medical devices deals involving venture capital firms was 15 percent lower at 313 compared to 20111.
Number Of First Time Investments In 2012 Lowest Since 1995
The study also found that there were only 135 life science companies that received venture capital for the first time in 2012, lowest since 1995. During the year, first time recipients attracted a total of just $664 million, a decline of 44 percent from 2011. The average deal size during the year among first time recipients was $4.9 million, compared with $6.3 million in 2011. Biotechnology companies accounted for 54 percent of first time financings in the life sciences sector in 2012.
It is also worth noting that during the year 2012, life sciences companies in the San Francisco Bay area attracted the most venture capital funding, followed by firms in the San Diego Metro, and NY Metro regions.
Recent Investment Trends Positive
Venture capital activity in the life sciences sector showed some life in the second half of 2012 though it was not sufficient to erase the annual decline. Life sciences venture funding rose 11 percent during the fourth quarter of 2012 to $1.9 billion compared to the prior quarter. Fourth quarter deal volume also increased 12 percent over the third quarter to 187 deals. Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US blamed global economic uncertainty for the lower funding levels during the first half of 2012. Lefteroff however adds that recent improvements to the regulatory process, faster product approvals and higher approvals rate could result in increased venture capital investment in the sector in 2013.
