Life Sciences Venture Capital Investment Slides in Q4 2010

$6 billion invested in 784 deals

Annual venture investment for the life sciences sector dropped by 2% in dollars from 2009 but increased 5% in deal volume, according to a new PricewaterhouseCoopers LLP/National Venture Capital Association MoneyTree report.

Funding totaled $6 billion which flowed to 784 deals in 2010.

Compared with the fourth quarter of 2009, life sciences venture funding decreased 42% in Q4 of 2010 to $1.1 billion. This decline marked the largest year-over-year decrease since the first quarter of 2009 and the lowest level of funding for the sector since the first quarter of 2003, according to the report.

For the fourth quarter deal volume decreased by 21% to 165 deals when compared with the same quarter of 2009.

"During the fourth quarter, we saw tremendous uncertainty relating to FDA approvals, including the 510(k) process for medical devices, which is thought to have affected venture capitalists' outlook," said Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC. "Until we get more clarity as to the regulatory pathway not only for medical devices, but also for drugs and other biotech products, venture capitalists are expected to be cautious with deals."

The life sciences sector's investment split has remained generally consistent over the past two years. During the fourth quarter of 2010, biotechnology accounted for 63% of funding, while medical devices claimed 37%. In comparison, during the fourth quarter of 2009, biotechnology captured 59% of investment in the sector; and medical devices, 41%.

"We've seen good liquidity for the life sciences sector during 2010, with some IPOs in the fall and a fair amount of M&A activity during the last six months," added Lefteroff. "That uptick in exit activity could lead to an increase in earlier-stage investments going forward. As venture capitalists get liquid on some of their later-stage investments, they can recycle that money back into new investments. And an increase in exits also gives them additional time to take on new investments."

Funding by Segment
Dollars invested in the Biotech Research, Biotech Industrial, and Biotech Animal categories rose 177%, 35%, and 136%, respectively. The Human Biotechnology sector captured the largest share in the fourth quarter but also experienced the largest drop with $383 million going into 48 deals, a 49% decline in dollars and a 27% decrease in deals from Q4 of 2009.

Funding for all Medical Device egments in Q4 2010 showed double-digit decreases in both dollars and deals from Q4 of 2009. The Medical Therapeutics category accounted for two-thirds of the dollars and deals during the fourth quarter with $270 million going into 47 deals. This represents a 10% decrease in deals and a 46% decrease in dollars compared to the fourth quarter of 2009.

A full copy of the report is available here.

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