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Life sciences VC investments soar to highest level since 2007

Venture capital (VC) funding for the life sciences sector, which includes biotechnology and medical devices, reached USD2.5 billion in 195 deals for the second quarter of 2014, according to a report.

The report, which includes data from the MoneyTree Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), and is based on data provided by Thomson Reuters, reveals that while Q2 saw the highest level of investment since the second quarter of 2007, it was also the strongest second quarter since 1995, which is the earliest data recorded by the MoneyTree.
During the second quarter of 2014, VC funding for life sciences increased 25 per cent in dollars invested, while the number of deals was flat compared to the same period last year. Dollars flowing into life sciences companies accounted for 19 per cent of total VC dollars invested in Q2, compared to 28 per cent in the second quarter of 2013. The decrease is due, in part, to the increase in the number of megadeals (investments of USD100 million and more) occurring in the software sector.
The average deal size for life sciences companies was USD12.8 million for the second quarter of 2014, an increase of 26 per cent year-over-year and 35 per cent quarter-over-quarter.
"The uptick in VC investing in Q2 is a direct reflection of the activity we're seeing in the public markets," says Greg Vlahos, life sciences partner at PwC. "As VCs take advantage of the open initial public offering window and the high valuations in the mergers and acquisitions market to exit, they are putting capital back to work for a new cycle of investments. The competition for dollars among the next generation of life science businesses remains, and businesses looking to attract VC investment need to have compelling stories and a roadmap for their product strategies to showcase their path forward."
The biotechnology industry had the strongest second quarter since at least 1995, with USD1.8 billion flowing into 122 deals and captured the second largest investment total behind the Software industry. Even after excluding two large biotechnology deals, the sector saw a nearly 40 per cent jump in investment dollars over the previous quarter. Biotechnology captured 74 per cent of total life sciences investment during the second quarter of 2014, identical to the same period last year but higher than the 64 per cent life sciences investments represented in the first quarter of 2014. Two of the top 10 deals in Q2 were investments in biotechnology companies and together accounted for USD320 million.
Investments in medical device companies reached USD649 million in 73 deals for the quarter, which represented a 23 per cent increase in dollars invested but a five per cent decrease in the number of deals. On a quarter-over-quarter basis, funding increased 69 per cent for biotechnology and 23 per cent for medical devices. On a year-over-year basis, biotechnology and medical device investments increased by 25 per cent and 23 percent, respectively, in terms of dollars invested.
First-time funding for the life sciences sector in Q2 2014 decreased by 20 per cent to USD267 million while the number of deals decreased by 18 per cent to 32 deals, when compared to Q2 2013. However, follow-on funding for life sciences sector increased 34 per cent to USD2.2 million and the number of deals increased three per cent to 163 deals, during the second quarter of 2014, when compared to the same period of last year.
"Follow-on funding for biotechnology was the highest since at least 1995 as VCs continue to support companies in their portfolio," Vlahos says. "Despite the dip in companies receiving an investment for the first time, VCs continue to see high growth potential for the industry thus the overall increase in dollars invested in the second quarter."
Compared to the second quarter of 2013, four of the eight biotechnology subsectors saw an increase. The biotech-human sub-segment once again saw the largest amount of funding at USD1.4 million, an increase of 36 percent. Biosensors captured the second largest total at USD132 million, which represented an increase of 154 percent. Biotech-animal and biotech-industrial also saw increases in funding from the prior quarter, capturing USD80 million and USD68 million, respectively. The three biotech subsectors showing a decrease in funding compared to the second quarter 2013, were pharmaceutical, biotech equipment, and biotech research which declined 67 percent, 47 per cent and 9 percent, respectively.
Funding for all medical device sub-segments increased on a year-over-year basis, with medical/health products seeing the largest increase of 199 per cent to USD156 million, while medical diagnostics and medical therapeutics increased 15 per cent and two per cent, respectively.
The top five metropolitan regions receiving the most life sciences venture capital funding during the second quarter of 2014 were San Francisco Bay Area, Boston, San Diego Metro, New York Metro and Great Lakes. San Francisco Bay Area companies received USD866 million going into 54 deals. Boston Metro received the second highest total at USD540 million in Q2. San Diego Metro, NY Metro, and Great Lakes captured USD167 million, USD125 million, and USD123 million, respectively.

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