PwC: Companies in Life Sciences sector captured largest share of overall venture capital during 2009

Companies in the Life Sciences sector, which includes the biotechnology and medical device industries, captured the largest share of overall venture capital during 2009, reflecting the relative strength of the sector during the economic downturn, according to PricewaterhouseCoopers LLP (PwC).

"Under Recovery," a new PwC report that includes data from the PwC/NVCA MoneyTree Report, based on data from Thomson Reuters finds that Life Sciences funding for 2009 totaled $6 billion in 715 deals, accounting for 34 percent of all venture dollars invested, compared to 28 percent in 2008.

"Venture capitalists see real opportunity for growth within the sector. As the worldwide population ages and more people enter their years of greatest healthcare need, demand for new pharmaceuticals, diagnostics, and medical devices has the potential to go higher than we've ever seen," said Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers.

For all sectors, venture capitalists invested $17.7 billion in 2,795 deals in 2009, marking the lowest level of dollar investment since 1997.  Compared with 2008, dollar investments into Life Sciences plunged 22 percent in 2009, while the number of deals dropped 19 percent during the same time period, marking its lowest point in the past six years. Despite the decline, Life Sciences investment has outpaced overall venture capital funding since the third quarter of 2008.

In the last quarter of 2009, biotechnology investments totaled $1 billion in 108 deals with another $719 million going into 87 medical device and equipment deals. Biotechnology funding declined by 7 percent year over year, primarily due to a drop in deal activity. However, funding for medical devices increased by 14 percent compared with the same quarter in 2008. This increase reflected gains in both deal activity and deal size.

Investments by Stage of Development

Early-stage funding for the Life Sciences sector exceeded $1 billion in the fourth quarter of 2009 for the first time. Increases in both deal activity and deal size resulted in this rise in early-stage investment.  Late-stage funding declined to $717 million in the fourth quarter of 2009, compared with $1 billion in the same quarter in 2008. Late-stage deal activity and deal size both declined in this period.

"The need for venture capital is greater for early-stage companies that don't yet have an exit strategy. They need to funnel assets into the clinic to develop products that will make them attractive acquisitions or IPOs down the line," Lefteroff explained.  "Later-stage companies are finding other ways to generate cash, such as partnerships and licensing agreements with larger companies looking to expand their product pipelines."

Funding by Subsegment

Historically, the biotech human subsegment has received a majority of the biotechnology industry funding every quarter. In the fourth quarter of 2009, with $714 million in funding, the biotech human subsegment alone received almost as much funding as the whole medical device industry. Out of 108 biotechnology deals for the fourth quarter of 2009, 64 of those belonged to biotech human. Looking at 2009 as a whole, 244 of the 406 biotechnology deals belonged to the biotech human subsegment.  Investment in the biotech equipment subsegment demonstrated strong growth for the year, increasing by 67 percent to $207 million.

In the medical device industry, the medical therapeutics subsegment historically attracts the most funding every quarter. However, it began to show a decline after the second quarter in 2009, dropping from $455 million in that quarter to $439 million in the fourth quarter.  Within the medical therapeutics subsegment, the surgical lasers subsegment jumped by 58 percent to $78 million. Surgical instrumentation and equipment also gained a small percentage, capturing $865 million for the year.

In the fourth quarter of 2009, the medical and health products and medical diagnostics subsegments grew by 118 percent and 35 percent, respectively — resulting in a growth of 14 percent for medical devices as a whole over the last quarter of 2008.

Investments by Region

The top five metropolitan regions receiving Life Sciences venture capital funding during 2009 were San Jose ($1,244 million), Boston ($990 million), San Diego Metro ($606 million), San Francisco/Berkeley ($477 million), and New York Metro ($427 million).

Funding in the San Jose area declined more steeply than the national level in 2009, while funding in the Boston metro area outperformed the national average. Both biotechnology and medical devices demonstrated stronger performance in the Boston area.