Flow of biotech venture dollars and deals shrivels in Q2

After you get past the bullish headline on PricewaterhouseCoopers' release on second quarter venture funding in the life sciences industry--up 37%!--you'll find that year-over-year the stream of venture dollars flowing into biotech shriveled, with significantly fewer deals available to finance new drug development.

Drawing from data gathered by Thomson Reuters, the PwC/National Venture Capital Association MoneyTree Report concluded that second quarter "biotechnology investing declined by 9% in dollars and dropped 24% in deals year-over-year with $1.2 billion going into 116 deals."

But there were a few upbeat aspects for biotech in the report. In particular, the analysts found that early-stage deals for life sciences companies grew significantly. First-time deals in the life sciences sector averaged $6.4 million in the second quarter of 2011, a 36% jump year-over-year and significantly higher than the average first-time deal size of $4.8 million for all industries during the quarter. And venture groups are taking a more realistic approach to the long timelines needed to advance experimental treatments.

Overall investing in the life sciences hit $2.1 billion with 206 deals altogether, the seventh best quarter recorded by the group in the past 16 years. And noted biotech analyst Tracy Lefteroff at PwC found that a bump in the number of life sciences "exits" left more money for the venture groups to play with.

"The rise in venture capital investment going into life sciences during the second quarter can be attributed, in part, to an increase in exit activity," said Lefteroff, global managing partner of the venture capital practice at PwC. "The exit market for biotech and medical device companies has been more active over the past year, and exit activity allows venture funds to achieve liquidity in their portfolios. This liquidity enables venture funds to return dollars to their limited partners and make additional funds available to support the rest of their portfolios."

It will be interesting to see how the current market panic will affect the analysts' third and fourth quarter reports. Upheavals on Wall Street make it harder for everyone to raise money and a flight from risk is not the kind of financial environment that venture groups find encouraging.

- here's the PwC release