PwC finds mixed bag of VC trends as Q3 cash flow, deal count slows

The analysts at PricewaterhouseCoopers studied the most recent batch of quarterly data on life sciences venture investing--the lifeblood of the drug discovery industry--and came up with a mixed bag of upbeat as well as discouraging conclusions. Not surprisingly, the lack of IPOs, a rising tide of discouragement at regulatory prospects and a general lack of lucrative exits all conspired to make life harder for the VC crowd.

As we've seen in other analyses of the third quarter, the numbers are down in some respects but the developers that are bringing in money are bringing in sizeable chunks of cash.

The $1.8 billion invested in 170 life sciences deal represents the smallest number of deals since the first quarter of 2009. Investment in the sector jumped 22% year over year, but dollars and deal volume slid 18% and 21%, respectively, compared with the $2.2 billion invested in 214 deals during the previous quarter.

A total of 21 life sciences companies gained venture capital funding for the first time in the third quarter, grabbing $181 million. That's a 54% drop in the number of companies but a 6% increase in dollars invested, compared to Q3 2010. First-time deals averaged $8.6 million in the second quarter of 2011, a whopping 131% spike year over year and "notably higher than the average first-time deal size of $7.9 million for all industries during the quarter."

"VCs are saying that challenges in the regulatory environment for life sciences companies are prompting them to look to other industries to put their money to work for a faster return on their investment," noted Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. "When investors see a lack of exits for their companies, it depresses their appetite for funding on the front end. The nearly shut IPO window and volatility in the equity market during the third quarter contributed to the slowdown in life sciences venture funding."

- here's the press release