Venture capital funding for the life sciences sector, which includes biotechnology and medical devices, increased 15% in value during the first quarter of 2014, compared to first quarter of 2013, according to a new PwC US report.
Venture capitalists invested US$1.7bn in 173 life sciences deals during the quarter, compared to US$1.4bn in 173 deals during the same period in 2013. While there was an increase in life sciences investments, the category still underperformed the US$9.5bn total venture capital investments made in the first quarter, and is now at the lowest proportion of total investments since 2001.
During the first quarter 2014, biotechnology companies attracted US$1.1bn, or 64% of total dollars invested and 22% in deal value over the first quarter of 2013. The biotechnology industry logged 112 deals, compared with 99 during the first quarter of 2013, a 13% increase in deal volume. The Medical Devices industry finished up 5 percent in dollars, but deal volume decreased by 18% to 61 deals for the first quarter of 2014, capturing US$588m.
“Life sciences and biotechnology investments are off to the strongest start of the year since the recession,” said Greg Vlahos, Life Sciences Partner at PwC. “A strong IPO market has contributed to increased venture capital investments. We’re continuing to see interest in these businesses, especially in the early stages of their development. Venture capitals ability to monetize their earlier investments and source early-stage investments is a positive sign for ongoing investments in life sciences.”
While first quarter 2014 overall life sciences deal value and volume decreased 10% and 28% respectively compared to the fourth quarter 2013, average life sciences deal size rose 15% to US$9.5 million from the same time last year and increased 24% compared to fourth quarter 2013. In addition, the average deal size for medical devices investments was US$9.6m – the highest since the last recession.
“There is a lot of competition for capital and venture funds are being selective in their investments, which explains why life sciences underperformed total venture capital investments,” Vlahos said. “There is still a lot of interest in the space but investors recognize that these deals have longer durations and higher capital requirements. The increase in average deal value and early stage investments tells us that investors have a growing appetite for risk and are placing bigger bets on a smaller number of life sciences companies in hopes of generating outsized returns.”