Venture capital funding in the life sciences sector, including biotechnology and medical devices, tumbled in both value and volume during the first quarter of 2013, as investors instead sought software and other less capital intensive industries to park their money, according to a report from PricewaterhouseCoopers LLP (PwC).
Venture capitalists invested $1.4 billion in 167 life sciences deals during the first quarter, a 14 percent drop in dollars and 16 percent slide in the number of deals, compared with last year’s $1.6 billion in 199 deals during the same period, said a recent PwC news release announcing the report.
[See also: Venture funding and mHealth]
The first quarter of 2013 marks the lowest number of life sciences deals since the first quarter of 2009, the report said. Quarter-over-quarter life sciences funding suffered a greater drop—28 percent in dollars and 23 percent in deals.
The “Capital Crunch” includes data from PwC and the National Venture Capital Association (NVCA) MoneyTree Report, which is based on data from Thomson Reuters.
“As the number of venture capital funds continued to shrink, less capital-intensive industries — notably, software — attracted a greater share of the limited dollars available,” said Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US, in the report.
“The high level of funding needed, comparatively long time to market, and regulatory uncertainty can hinder the ability of life sciences companies to attract venture capital, especially during times of limited fundraising,” he said. “Capital-efficient companies that have shorter time frames to a liquidity event — whether that is M&A or IPO — are often more successful in these times in attracting the attention of investors.”
[See also: Analysts predict downward trend will continue for life sciences VC]
The life sciences share of the $5.9 billion total venture capital dollars invested declined from 29 percent during the last quarter of 2012 to 24 percent during the first quarter of 2013. Biotechnology dropped 33 percent in dollars and 30 percent in deals compared to the prior quarter, with $875 million going into 96 deals, placing it a distant second in dollars raised behind the software industry, which drew $2.3 billion in 329 deals. On a year-over-year basis, biotechnology investing fell 2 percent in dollars and 19 percent in deals.
In Q1, medical device investments dropped 20 percent in dollars and 10 percent in deals, with $509 million going into 71 deals, compared with $635 million in 79 deals during the previous quarter. On a year over year basis, dollars invested fell 29 percent while deals dropped 12 percent.
During the first quarter of 2013, only 20 life sciences companies received venture capital funding for the first time, attracting $98 million. This was the fewest number of companies receiving venture capital funding since the second quarter of 1995. It also represented a 52 percent plunge in dollars invested and 46 percent in the number of deals compared to the fourth quarter of 2012.
This was also the lowest quarterly amount since the third quarter of 1996 and only the fourth time in survey history that the total fell below $100 million in a single quarter, the report said.
The top five metropolitan regions receiving life sciences venture capital funding during Q1 2013 were San Francisco ($427 million), Boston ($273 million), San Diego ($122 million), New York ($106 million) and Washington ($100 million).
Trends including a growing middle class in emerging markets, expanded access to care and efforts by the U.S. by the Food and Drug Administration to streamline the regulatory approval process offer encouragement for greater demand for life sciences products, Lefteroff said.
[See also: Healthcare IT venture capital and M&A hold strong in Q3 2012]