- The latest MoneyTree report by PwC, an accounting and consulting firm, paints a cautiously positive picture of life sciences investing in the U.S. Investment levels in the life sciences sector were at record highs in 2015, but started to slow at the end of the year. This slowdown has continued through the first half of 2016.
- VC funding for the life sciences sector, including biotech and medical devices, dropped by 10% by value and 18% by volume year-on-year in 2016 — a similar pattern to that seen in other industries.
- The biotech sector received the second largest amount of venture funding in the first half of 2016, with $3.6 billion going into 224 deals, a decrease of 6% in deal value and a decrease of 14% in deal volume, compared with the first half of last year.
“Although we are seeing a slight decline in life sciences investment dollars and volume compared to the record 2015 results, we are still on track for one of the strongest years in life science investing, demonstrating continued confidence in the sector by the venture community," said Greg Vlahos, Life Sciences Partner at PwC, in the report
The biotech industry had two deals on the top ten list during 2016, down from three deals in 2015. The deals totaled $100 million or greater.
"The decline in venture capital activity this quarter is part of the normalization process that is expected after a quarter in which record-breaking investments dominated headlines," said Tom Ciccolella, U.S. venture capital market leader at PwC.
"Despite deal count being the lowest since Q3 2010, quality deals continue to receive funding. The broader ecosystem remains healthy, bolstered by a lift in biotechnology within the top deals and overall, strong fundraising, and a continuation of the trend towards investments in non-traditional industries."
Biotechs captured a larger piece of the pie this year, accounting for nearly 77% of all life sciences funding, compared with 75% last year. According to Vlahos, this is a sign of VCs investing more capital per deal, which gives companies more legroom during the development process.
Investment levels and frequencies differed by subsectors in the life sciences. Within biotech, investment in biosensors increase 186% to $125 million, biotech equipment investment increased 161% to $94 million, biotech animal investment increased 141% to $114 million, while biotech industrial investment increased only 13% to $116 million.
Biotechnology has traditionally been a high risk, high reward business, with some companies struggling to get early stage investment. Yet, early stage biotech investing increased 4% to $2.7 billion in 147 deals, compared with $2.6 billion in 170 deals for the same period of 2015. Meanwhile, late-stage funding declined by 26% to $954 million in 77 deals, compared with $1.3 billion in 89 deals in the first half of 2015.
The IPO interest was greater in the second quarter than the first. There were nine venture-backed IPOs from the biotech sector in the second quarter of 2016, up from five biotech offerings and one medical device offering.
The report is based on data from Thomson Reuters, and focuses on VC investments in private emerging companies in the U.S.