Economy catches up with biotech investing

Early in 2008, life science investment was on a roll. It seemed as though the industry wouldn't be bothered by many problems affecting the rest of the economy, and that it was a safe haven compared to other more volatile markets. But Robert Dellenbach at Genetic Engineering News observes that the poor economy has caught up with the industry.

"Despite an abundance of funding as well as scientific and technological progress, the environment for investing in the life science industry seems to have changed dramatically," said Dellenbach.

In the last quarter of 2007 and the first quarter of 2008, life sciences enjoyed a record level of investment. But by the second quarter of this year, there were only 215 investments totaling $1.9 billion; that's compared to 315 investments totaling $3 billion in the first quarter. For the biotech industry, the numbers are even worse. "The number of biotechnology venture backings fell by nearly 50 percent, and the dollar amount invested fell by more than 40 percent from the first quarter...Outside the U.S., the venture financing value fell nearly 50 percent in the same period." On top of that, the IPO market is downright bleak [1]--there were no VC-backed IPOs in the second quarter.

According to Dellenbach, three factors are having a negative impact on the level of life science investment:

• Biotech is notoriously risky and investors may be waiting for a better economy.
• Drug development investments are longer-term than medical device and other healthcare ventures. Investors looking for a quicker return are drawn to these options.
• The emergence of clean and green tech investment opportunities have given VCs an alternative to biotech investment.

Because of the long-term nature of life science investments, the industry should be somewhat insulated from the current economic downturn [2]. But increased caution on the part of life science VCs is causing them to wait for a better time to invest.

- see the GEN article [3]

Related Articles:
Venture groups switching to survival mode [4]
Venture funding slides as IPOs go into deep freeze [1]
Analysts predict more M&A as capital shrinks [5]
Rocky market puts freeze on biotech deal-making [6]