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US life sciences VC funding drops 14 per cent during 2012, says MoneyTree report

US venture capital (VC) funding in the life sciences sector, which includes the biotechnology and medical device industries, dropped 14 per cent in dollars and seven per cent in deals during 2012 according to a PwC US report.

The report, "Double-digit dip", includes data from the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association based on data provided by Thomson Reuters. 

Venture capitalists invested a total of USD6.6bn in 779 life sciences deals during the year, compared with USD7.7bn in 836 deals during 2011. The number of life sciences companies receiving VC funding for the first time reached the lowest level since 1995 with only 135 companies receiving funding in 2012.

Compared to the prior quarter, life sciences venture funding rose 11 per cent in Q4 2012 to USD1.9bn. Deal volume also increased, rising 12 per cent to 187 deals compared to the prior quarter.

For all sectors, VCs invested USD26.5bn in 3,698 deals in 2012, a 10 per cent drop in dollars and 6 per cent decline in deals from the prior year. Venture investors funnelled USD26.5bn into 3,698 deals during 2012. While total investments saw a decline for the year, deal volume in Q4 2012 rose five per cent compared to the prior quarter. However, dollars invested did decline three per cent over the same time period to USD6.4bn in 968 deals.

"The 2012 investment levels came in lower than what we saw during 2011," says Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. "The pickup during the third quarter for biotechnology and for both industries during the fourth quarter wasn't enough to outpace lower funding levels during the first half of 2012. Global economic uncertainty, capital intensity, regulatory risk, and more discriminating investors were all potential factors that weighed on sector performance for the year."

Investments in biotechnology companies in 2012 fell 15 per cent in dollars while the number of deals was flat, with USD4.1bn going into 466 deals.  For the fourth quarter of 2012, USD1.3bn went into 135 biotechnology companies, an increase of three per cent in dollars and 13 per cent in deals from the third quarter when USD1.2bn went into 119 rounds.

Medical device investments fell 13 per cent in dollars and 15 per cent in deals in 2012, finishing the year with USD2.4bn going into 313 deals.  For the fourth quarter, medical devices saw an increase of 32 per cent in dollars and nine per cent in deals from Q3 2012 with USD581 million going into 74 deals.  The life sciences sector accounted for 25 per cent of all venture capital dollars invested in 2012 compared to 26 per cent in 2011.

"Several recent developments bode well for the life sciences sector when it comes to venture investing during 2013," Lefteroff says. "Product approvals at the FDA reached a 16-year high for the calendar year 2012. Products targeting critical unmet needs are getting approved, and at a quicker pace. And with the renewal of the user fee legislation last year came several improvements to the regulatory process that should start yielding greater efficiency.  At the same time, significant challenges remain. The time and cost and uncertainty of new product development have increased substantially over the course of several decades, and the willingness of healthcare systems in the US and around the world to pay for innovative new products is an area of concern for the future.  Despite the challenges, venture capitalists will continue to seek out the most innovative companies with the business models and products to meet the growing demand for better health outcomes and higher value to the healthcare system."

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