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Venture capital (VC) funding in the Life Sciences sector, which includes the biotechnology and medical device industries, captured the highest percentage of VC dollars invested during the first quarter of 2010 according to a new PwC report, "Holding the Lead," that includes data from the PwC/NVCA MoneyTree Report, based on data from Thomson Reuters. Life Sciences funding for Q1 2010 totaled $1.3 billion in 160 deals, which represents 28 percent of all venture dollars invested and 23 percent of total deals during the quarter.
Despite capturing the largest percentage of total dollars invested, Life Sciences investments dropped when compared to Q4 2009, when $1.8 billion was invested into 202 deals. This represents a decline of 26 percent in dollars and 21 percent in deals from Q4 2009. The first quarter of 2010 reversed an upward trend in deal activity, which had grown for three previous quarters.
"This quarter marked a period of slow economic recovery and political uncertainty for the Life Sciences sector," said Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. "It's too early to say that the first-quarter decline in sector funding represents a trend, since a decline in first-quarter funding is not unusual. Looking back, we see that funding has declined in the first quarter as compared to the prior quarter in 10 out of 15 years. Funding activity typically increases in the fourth quarter when venture capital firms try to meet their investment allocation targets."
For all sectors, venture capitalists invested $4.7 billion in 681 deals in the first quarter, a decline of 9 percent in terms of dollars and 18 percent in terms of deals, compared to the fourth quarter of 2009 when $5.2 billion was invested in 832 deals. Life Sciences has been the number one sector for VC investing since Q2 of 2005, with Biotechnology being the absolute single-industry leader in dollars invested over the past four quarters.
The investment split for the Life Sciences sector in the first quarter of 2010 remained consistent with previous years. Biotechnology accounted for 61 percent of dollars with $825 million going into 99 deals, while Medical Devices claimed 39 percent of dollars with $517 million going into 61 deals.
Investments by Stage of Development
Both Early- and Later-stage funding decreased in terms of dollars from the previous quarter. In Q1, Later-stage funding decreased by 11 percent, and Early-stage investments decreased by 36 percent from the prior quarter. Early-stage deal volume also declined from the last quarter of 2009 to the first quarter of 2010.
Early-stage investments in the Biotechnology sector outpaced Later-stage funding, continuing a four-quarter trend. For the Medical Device industry, Later-stage funding fared better, increasing 16 percent from the prior quarter to $359 million.
Funding by Subsegment
Three of the seven Biotechnology subsegments exhibited growth in the first quarter. Industrial Biotechnology grew from $22 million in the last quarter of 2009 to $81 million in the first quarter of 2010. Additionally, Biotechnology Research grew from $19 million to $34 million during the most recent quarter while investment in the Biotech Pharmaceutical subsegment remained stable, growing 5 percent from Q4 2009.
Funding for two of the three medical device subsegments dropped from the previous quarter. The medical/health subsegment saw modest growth of 5 percent from the prior quarter, receiving $122 million during the first quarter. However, funding for the medical diagnostics and medical therapeutics subsegments declined by 45 percent and 31 percent, respectively from the previous quarter. The drug delivery technology area of medical therapeutics received $129 million in funding during the first quarter of 2010 while surgical instrumentation and pacemakers received $67 million and $46 million, respectively.
"The demand for innovative pharmaceuticals, diagnostics, and devices is expected to continue to grow as medical care becomes more targeted, personalized, and outcomes focused," added Lefteroff who also predicts that the life sciences sector will continue to attract the largest share of U.S. venture capital investment.
Investments by Region
The top five metropolitan regions receiving Life Sciences venture capital funding during Q1 2010 were Boston ($354 million), San Jose ($215 million), San Diego Metro ($141 million), New York Metro ($82 million), and San Francisco-Berkeley ($67 million). Boston was the only one of the top five metro areas to experience an increase in funding in the first quarter of 2010, rising 15 percent in dollars invested from the prior quarter.
Conversely, the other four top metro regions experienced drops in both dollars invested and in the number of deals. The New York Metro region experienced the most significant decline in the first quarter, dropping 64 percent in dollars invested from the prior quarter. San Jose dropped 25 percent while San Diego, and San Francisco-Berkeley both dropped 28 percent in dollars invested from the prior quarter.
A full copy of the report is available for download at http://www.pwc.com/lifesciencesmoneytree.
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