Early VC rounds nosedive for biotech startups in Q1

Life sciences venture investors gambled far less on life sciences startups in the first three months of the year, underscoring a shift toward later-stage deals and concerns about the amount of dollars going into newly hatched drug and device developers.

After reporting last month that first-quarter venture investing in U.S. biotech dropped by 43%, PricewaterhouseCoopers has drilled deeper into the numbers and noted that young life sciences outfits might have fared even worse than more mature startups. Based on data from Thomson Reuters, the firm found that the number of companies to get their first influx of VC money fell by 53%, and dollars invested into deals shrank by 38% in the first quarter compared with the same period last year.

The game of taking the pulse of innovative activity in biotech based on venture numbers can be tricky, as young drug developers have learned to make do with smaller budgets and some outfits choose to stay under the radar and advance programs without a big-bang VC round. There's also plenty of talk about the dearth of big-idea operations getting off the ground nowadays because of the huge expense and risk of supporting such companies. 

"I don't get concerned about quarterly variation in dollars and deals," Atlas Venture partner Bruce Booth, who invests in biotech, said in an email. "Overall Life Sciences investments were within 10% of 1Q 2011, and 2011 was one of the strongest four years for [life sciences] venture investing in the past 15 years."

The VC industry as a whole has contracted, yet Booth's analysis shows that the relative interest in backing biotech and device companies hasn't changed. "[Life sciences] remains reasonably steady as a percentage of total venture capital spend: it has been around 25% for most of the last decade and I expect that to continue."

- here's PricewaterhouseCoopers' release