Following up on last month's report detailing general venture capital trends, PricewaterhouseCoopers has released a report focusing on venture capital spending in the life sciences industries specifically, including the medical device industry. The overall numbers still look good; as we discussed previously on the Orthotec blog, life sciences attracted $2.1 billion in the second quarter of 2011 (a 37% increase from the previous quarter), and $841 million went into medical devices (a 26% bump from the first quarter). But a more detailed examination reveals a more complex picture.
First, second-quarter funding in life sciences dipped 3% from 2010 to 2011 in terms of total dollars and fell 21% in terms of deal volume. The year-over-year figures were more mixed in medical devices, with total dollars rising 9% and total deals falling 17%. Biotechnology gained a bit of ground on medical devices in the second quarter, taking 60% of the life sciences funding to medical devices' 40%; in the first quarter, biotechnology took 56% and medical devices took 44%.
What explains the rise in total dollars and the dip in deal volume? Well, in life sciences overall, individual deals were worth a relatively high amount, pulling in $10.1 million.
PwC's Tracy Lefteroff explained the rise in deal size in the report. “Average deal sizes have increased partially because of the longer time frames that venture capitalists anticipate they will need to fund their portfolio companies before they can achieve liquidity,” Lefteroff said. “Investors realize that the lengthy and complex R&D this industry requires—and an uncertain regulatory approval process—increase the time frames and funding necessary to bring a new drug or medical device to market.”
Within the segment of medical devices, therapeutic devices were the big winners year-over-year, grabbing 33% more dollars in Q2 of 2011 than they did in Q2 of 2010, hauling in a whopping $655 million in 59 deals. Medical diagnostics and medical/health products were the losers, declining 7% and 57%, respectively, year-over-year. The report mentioned that "funding was strong for pacemakers and artificial organs, which saw large investment deals during the quarter." Regionally, the San Francisco Bay Area received the most life sciences funding, attracting $552 million, of which $393 million went to medical devices.
— Thomas Blair