Life Sciences Venture Capital Funding Drops 14% During 2012, According To The MoneyTree Report

NEW YORK, Feb. 7, 2013 /PRNewswire/ -- US venture capital (VC) funding in the life sciences sector, which includes the Biotechnology and Medical Device industries, dropped 14 percent in dollars and 7 percent in deals during 2012 according to a new PwC US report, "Double-digit dip" that includes data from the MoneyTree™ Report from PricewaterhouseCoopers LLP and the National Venture Capital Association based on data provided by Thomson Reuters.  Venture capitalists invested a total of $6.6 billion in 779 Life Sciences deals during the year, compared with $7.7 billion 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.

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Compared to the prior quarter, Life Sciences venture funding rose 11 percent in Q4 2012 to $1.9 billion. Deal volume also increased, rising 12 percent to 187 deals compared to the prior quarter.

For all sectors, VCs invested $26.5 billion in 3,698 deals in 2012, a 10 percent drop in dollars and 6 percent decline in deals from the prior year. Venture investors funneled $26.5 billion into 3,698 deals during 2012. While total investments saw a decline for the year, Deal volume in Q4 2012 rose 5 percent compared to the prior quarter.  However, dollars invested did decline 3 percent over the same time period to $6.4 billion in 968 deals.

"The 2012 investment levels came in lower than what we saw during 2011," said 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 percent in dollars while the number of deals was flat, with $4.1 billion going into 466 deals.  For the fourth quarter of 2012, $1.3 billion went into 135 Biotechnology companies, an increase of 3 percent in dollars and 13 percent in deals from the third quarter when $1.2 billion went into 119 rounds. 

Medical Device investments fell 13 percent in dollars and 15 percent in deals in 2012, finishing the year with $2.4 billion going into 313 deals.  For the fourth quarter, Medical Devices saw an increase of 32 percent in dollars and 9 percent in deals from Q3 2012 with $581 million going into 74 deals.  The Life Sciences sector accounted for 25 percent of all venture capital dollars invested in 2012 compared to 26 percent in 2011.

"Several recent developments bode well for the life sciences sector when it comes to venture investing during 2013," Lefteroff said. "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."

First-Time Financing

First-time funding for life sciences companies fell 41 percent in dollars to $664 million going into 135 companies in 2012.  This marked the lowest number of companies receiving funding for the first time since 1995. First-time deals in the life sciences sector averaged $4.9 million for 2012, compared to $6.3 million in 2011 companies.  The Biotechnology industry accounted for 54 percent of first-time financings in the Life Sciences sector in 2012.

Funding by Sub-segment

Three of the seven Biotechnology subsegments exhibited growth in the fourth quarter of 2012, compared to the prior quarter.  Dollars invested in the Biosensors, Biotech Research, and Biotech-Human subsegments rose 415 percent, 58 percent, and 41 percent, respectively.   The Biotech-Human subsegment accounted for the largest share of dollars in the fourth quarter at $1.1 billion.  For the full year 2012, Biotech-Human also led in funding at $3.2 billion, but, like all of the Biotechnology subsegments, it experienced a decline in funding when compared to 2011.

For the full year 2012, all three of the Medical Device subsegments recorded a decline in funding.  The Medical Therapeutics subsegment captured the majority of the investments in the Medical Device industry in 2012, accounting for 61 percent of the deals and 80 percent of the dollars.  In Q4, only the Medical Therapeutics subsegment experienced an increase, jumping 65 percent over the prior quarter to $520 million.

Investments by Region

The top three metropolitan regions receiving Life Sciences venture capital funding during 2012 were San Francisco Bay ($1.7 billion), San Diego Metro ($709 million), and NY Metro ($415 million).  In Q4, the top five metropolitan regions receiving funding were San Francisco Bay ($588), Boston ($278), NY Metro ($214), San Diego Metro ($142), and the Great Lakes ($94 million).  Investments in Biotechnology deals accounted for 71 percent of the dollars invested in the top five regions in Q4 2012.

A full copy of the report is available for download at www.pwc.com/us/lifesciencesmoneytree

About PwC's Pharmaceutical and Life Sciences Industry Group
PwC's Pharmaceuticals and Life Sciences Industry Group (www.pwc.com/us/pharma and www.pwc.com/us/medtech) is dedicated to delivering effective solutions to the complex strategic, operational, and financial challenges facing pharmaceutical, biotechnology, and medical device companies. We provide industry-focused assurance, tax, and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 180,000 people in 158 countries across our network share their thinking, experience, and solutions to develop fresh perspectives and practical advice.

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SOURCE PwC US