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Biotech VC deals, dollars shrivel in Q1 as devices see an upturn

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Venture investing in biotech companies skidded 43% lower in the first quarter of the year compared with the strong numbers posted for the last three months of 2011, according to the figures gathered by Thomson Reuters. And the analysts at the National Venture Capital Association and PricewaterhouseCoopers tracked a shrinking number of rounds as they assessed the impact of the 99 deals that attracted $780 million in investments.

Medical device companies fared much better. The data reflects a 31% jump in the first quarter, with 72 deals attracting $687 million. And despite the biotech plunge, the association--as well as its partners at PwC--feels that some underlying trends are likely to come to the rescue. Citing the rising number of exits in the early part of the year, Mark Heesen, president of the NVCA, felt that the VCs could soon start shifting their attention to earlier stage companies. And seed financing is likely funding the rise of stealth biotechs still off the industry radar.

"Given that we saw an improvement in the public markets during the first quarter, we could see VCs return to placing their bets on seed stage companies in the coming quarters," remarked Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC. "While on the surface, the jump in dollars invested in the medical device industry during Q1 may seem surprising given the (combined) 22% drop in life sciences funding, a deeper dive shows that companies in the later stage of development accounted for more than half of the investments in this industry. A more active M&A market may be the reason that the biotech industry experienced a decline in investing in Q1, as VCs saw more of their portfolio companies experience exits during the first quarter."

Michael Greeley, a partner at Flybridge Capital, speculates that a longstanding trend that has seen more venture money being invested than raised may finally be having an impact on the funding scene. "Clearly the dramatic reduction in amounts invested in this past quarter suggest that the lines may now be starting to converge," notes Greeley in a blog posting.

- read the press release
- here's the column from Greeley

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