MOUNTAIN VIEW, Calif., March 6, 2013 /PRNewswire/ -- Decreasing exit opportunities and a challenging fundraising environment give pause to venture capitalists (VCs) in the North American healthcare industry. The increase in average deal value implies that VCs are choosing their companies prudently, despite reduction in the overall volume and value of deals.
New analysis from Frost & Sullivan's (http://www.financialservices.frost.com) Analysis of Venture Capital Investment Trends in the North American Healthcare Industry research reveals companies that have completed Phase 2 or are nearing Phase 3 of trials are attracting VC investors because of the shorter exit period and fewer failure risks.
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"Government initiatives such as tax exemptions, lower interest rates and subsidies will go a long way," said Frost & Sullivan Business and Financial Services Research Analyst Dr. E. Saneesh. "This support will prompt VCs to invest more in new products and technologies."
Owing to the current straitened circumstances, an increasing number of VCs are signing joint investment deals and forming partnerships with bigger healthcare companies, including pharmaceutical majors and medical technology companies.
However, the long drug development period, increasing clinical trial risks, stricter regulations, and decreasing initial public offerings (IPOs) make VCs skeptical about investing in biotechnology and pharmaceutical start-ups. Further, as the pharmaceutical and biotechnology sectors become more mature, start-ups will require heavier investments. This is causing the pharmaceutical and biotechnology sectors to change from VC-driven to focus more on private equity funded opportunities.
"Increased competition and uncertain margins compel pharmaceutical companies to adopt alternate methods," noted Dr. Saneesh. "These alternatives include strategic investments and venture investment arms to endow biotechnology companies that have attractive products in the pipeline."
Overall, innovations in drug delivery technologies, structural remodeling, and product stabilization are attractive to investors. Mobile health (mHealth) and healthcare IT, which can reduce delivery costs, will also draw VC funding.
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Analysis of Venture Capital Investment Trends in the North American Healthcare Industry
SOURCE Frost & Sullivan