VC's biotech investing slips in Q3, but '14 still looks like a record-breaker

Venture cash flow in the biotech industry during the third quarter paled in comparison with the red-hot numbers seen in Q2, but you shouldn't expect to hear anyone in the industry complain about it.

In the second quarter, biotech attracted a whopping $1.8 billion in new venture cash, the biggest three-month figure since 2005. For the past three months, the figure was a more modest $1.1 billion, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters. But that's still significantly higher than the same period a year ago. And with close to $4 billion raised in the industry over 9 months, biotech is positioned for one of its best years since the 2008 financial crisis hit.

"We consider this a great quarter," says PwC life sciences partner Greg Vlahos. In the second quarter, a couple of $100-million-plus megadeals tipped the scales, including Intarcia's behemoth $200 million round. And with biotechs still accounting for the lion's share of new IPOs--18 out of 23 IPOs in the third quarter were for life sciences companies, according to Vlahos--there's reason to believe that the overall environment for new venture rounds should remain strong.

One troublesome sign for biotech: the current turbulence in the stock market, which could start to frighten away the legions of investors who have enthusiastically backed some of the biggest biotech offerings.

Yesterday's news that Canaan Partners is rolling out a $675 million fund comes on top of a big round of new funds from the biotech industry's top players. Over the past 6 years, the number of venture groups operating in the life sciences industry has narrowed considerably, leaving fewer investors. But the remaining VCs represent a more sophisticated set, many of which are starting a new wave of closely held biotechs which can be sold to pharma partners.

Regardless of which way the market goes now, though, the life sciences groups will continue to have billions of dollars to invest in the next few years. And that bodes well for biotech in the short term.

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