Venture Investment Surges in Life Sciences

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Increased exits spur more financings.

This article published with permission from The Burrill Report.

Life sciences companies including biotech and medical devices saw a sharp increase in venture investment during the second quarter of 2011, compared to the prior quarter, with $2.1 billion going into the sector thanks to venture investors’ replenished coffers.

The rise in venture capital investments going into life sciences companies can be attributed to the increase in exit activity in that sector, says Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers US

“The exit market for both biotech and medical device companies has been active over the past year, and this has encouraged VCs to put more money back to work in this space,” he says.

In terms of dollars, investment in life sciences, encompassing biotechnology and medical devices, surged 37% in dollar terms and 12% in deal volume compared to the first quarter of the year. A total of 206 companies completed venture financing during the quarter.

Overall, the second quarter of 2011 saw the highest level of activity since the comparable quarter in 2008, with venture capitalists investing $7.5 billion across all sectors in 966 deals. The numbers come from a report issued by the National Venture Capital Association and PwC, based on data provided by Thomson Reuters.

Investment in Internet-specific companies topped the list with $2.3 billion going into 275 companies, but the biotechnology industry returned to second place, with $1.2 billion invested in 116 deals, up 47% in dollars invested and 20% in deal numbers compared to the first quarter 2011.

Cameron Health, a cardiovascular device maker, garnered the biggest financing round with $107 million. Other large deals included $77 million raised in a series G round by cancer drug developer Merrimack Pharmaceuticals, ahead of its filing for an initial public offering, and a $100 million for U.S. and China-based startup Ascletis, which will use the proceeds to in-license clinical stage compounds for development and commercialization for the Chinese market. At the same time, it will also seek early stage leads in China to develop through clinical proof-of-concept before partnering on a global basis.

Although the U.S. IPO market has picked up steam, it remains focused on internet startups and technology companies. While exits for life sciences companies continue to rely mainly on big pharmaceutical buyouts, U.S. life science IPOs doubled in the first half of 2011, compared to the first half of 2010, according to Burrill & Company. A total of 15 companies raised $1.1 billion through initial public offerings, an increase of 49% compared to the same period last year.