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Life sciences venture capital funding shrinks for fourth straight quarter

Venture capital funding in the life sciences sector, which includes the biotechnology and medical device industries, decreased 39 per cent in dollars and 22 per cent in number of deals during the second quarter of 2012 from the same quarter of last year, according to a new PwC US report.

“Dollar drought" includes data from the PricewaterhouseCoopers LLP/National Venture Capital Association MoneyTree Report, based on data from Thomson Reuters.

Venture capitalists invested a total of USD1.4bn during the second quarter, the lowest level since the fourth quarter of 2010. Deal volume was also down, dropping six per cent from Q1 to 174 deals. When compared to a year ago, dollars invested into life sciences companies during Q2 of 2012 decreased 39 per cent while the number of deals declined 22 per cent from the USD2.3bn invested in 223 deals during the second quarter of 2011.

For all sectors, venture capitalists invested USD7bn in 898 deals in Q2 2012, a decrease of 12 per cent in dollars invested and a 15 per cent decline in deals, compared to USD8bn going into 1,057 deals in the second quarter of 2011. The life sciences share of total venture capital dollars invested declined to 20 per cent in Q2, a nine per cent decrease from Q1 2012 to the lowest level since the third quarter of 2002.

"The long time horizon often required for a liquidity event, regulatory challenges, and large amount of capital often needed to fund life science companies likely contributed to this sector’s investment decline during the past four quarters," says Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US.

During the second quarter, biotechnology and medical devices each accounted for 10 per cent of total funding. In comparison, during the first quarter of 2012, biotechnology captured 14 per cent of investment in the sector and medical devices accounted for 12 per cent of the total.

Medical device investments remained flat in dollars quarter-over-quarter while the number of deals increased 11 per cent during the same time period. With USD700m going into 84 deals in Q2, the medical device industry ranked behind software and industrial/energy in dollars invested.

Biotechnology investing decreased by 17 per cent in both dollars and deals compared to the prior quarter, with USD697m going into 90 deals in Q2 2012. Biotechnology also fell to fourth in terms of overall dollars invested, behind the software industry, industrial/energy and medical devices. On a year-over-year basis, biotechnology investments decreased 52 per cent with deals down 30 per cent.

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