VCs pump more cash into late-stage efforts as startup rounds shrivel

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The biotech industry finished 2011 on a high note with a surge in venture investing, but you can still clearly hear the alarm bells ringing in the background. The National Venture Capital Association and PricewaterhouseCoopers concluded that VCs pumped $4.73 billion into biotechs last year, a four-year high and one of the best numbers seen in the past decade. But only 153 of the 785 investment rounds for biotech and medical device companies went to startups, a 15-year low and a worrisome trend for analysts concerned about the future of the industry.

Venture groups in general, and the NVCA in particular, complained all year long about the tough investment environment. Their favorite whipping boy has been the FDA, and there have been signs that regulators are growing more sensitive to the charges that they are too slow and too cautious. It certainly hasn't helped, though, that the IPO window keeps slamming shut, usually crushing a few biotech execs' fingers each time. And the NVCA noted again that without a healthy IPO market, venture groups are being forced to support their portfolio companies longer, increasing the size of life sciences rounds as the overall number of deals shrinks.

The bottom line on 2011 suggests that VCs are still willing to bet on drug developers. But they are increasingly focusing their time and attention and dollars on later-stage companies, shunning the startups that need Series A money to make it through the Valley of Death.

"This reflects a serious breakdown in the model that has fueled the U.S. leadership in life sciences innovation," said Warburg Pincus' Jonathan Leff, according to Bloomberg. But break the latest fourth quarter numbers down, and you can also find some distinct bright spots. That's especially true for the Boston biotech hub, which saw a big surge in fourth quarter investments.

"New England had a very good year, and biotechnology really carried the day for us,'' Kevin Shaw, a partner in PricewaterhouseCoopers' emerging company services practice in Boston, tells the Boston Globe. "The combination of our teaching hospitals, universities and venture capitalists who know biotech - that adds up to a strong cluster."

And while VCs have been pulling back from the start-up sphere, shunning companies that are years away from any prospective exit in an IPO-poor environment, Big Pharma groups have been stepping up to the plate via their corporate venture capital (CVC) units, as Atlas' Bruce Booth notes in his column today. "Reality is every early stage investor now has their favorite CVCs on speed dial for their next startups' funding round."

- here's the press release
- here's the Bloomberg report
- here's the Boston Globe story
- here's Bruce Booth's column

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