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VC investment in life sciences posts huge jump in Q2

SD takes #3 regional spot

The PricewaterhouseCoopers MoneyTree Life Science Report for the second quarter of 2014 details a very strong three months for venture capital investment in the life sciences, which includes biotechnology and medical device companies.

In fact, this was the strongest quarter in terms of dollars invested in life sciences since the second quarter of 2007, and the strongest second quarter since the data series began in 1995.

Nationally, total venture capital funding in life sciences was up 25 percent by value, though down 1 percent by volume, year over year.

A total of $2.5 billion in venture capital was invested through 195 deals, up from $2 billion in 197 deals in the second quarter of 2013.

Life science investment was up 47 percent from the first quarter of 2014, with funding for biotechnology companies up 69 percent and an 8 percent increase for medical devices.

Deal volume increased 9 percent quarter over quarter, with 122 deals in the biotech subsector, up from 114 in the first quarter, and 73 deals in the medical device space, up from 65 from the first quarter.

San Diego fared particularly well, ranking third among United States regions in terms of incoming deal value with roughly $200 million total, the majority of which was in biotech.

San Diego trailed Boston with the second-largest intake of VC dollars, and of course the San Francisco, San Jose and Berkeley triad in the No. 1 spot.

“The leader, San Francisco Bay Area, received $866 million, with $632 million allocated for biotechnology and the remaining $234 million going to medical devices,” the report states. “San Francisco Bay Area closed 54 deals during the second quarter of 2014, with an average deal size of $16 million.”

The largest life sciences deal of the second quarter was a $200 million investment in Boston-based Intarcia Therapeutics -- the largest deal for the Boston area from any industry in nearly 20 years.

The biotech industry captured two of the top 10 deals of the second quarter of 2014, which together accounted for $320 million.

The average deal size in the life sciences was $12.8 million in the second quarter of 2014, an increase of 26 percent year over year and 35 percent from the first quarter.

“Average deal size for life sciences was the largest in nearly two decades,” said PricewaterhouseCoopers’ Greg Vlahos. “Moreover, average deal size for early-stage deals was at a record high for both life sciences and biotechnology. Strong long-term potential of biotech ventures has led VCs to make these large early-stage investments. Also, the increased competition for deals in recent quarters is driving larger early-stage deals.”

One area that did see a decline was first-time funding. In the second quarter of 2014, first-time funding for the life science sector decreased 20 percent to $267 million, and the number of deals decreased 18 percent to 32 deals from the second quarter of 2013.

This means that follow-on funding increased, up 34 percent to $2.2 billion, and deal volume increased 3 percent to 163 deals, year over year.

“Follow-on funding for biotechnology was the highest since 1995,” Vlahos said. “High growth potential of the industry has increased the confidence of VCs in their current investments, resulting in the high level of follow-on investments and portends well for the industry.”

Though these numbers are positive, the report states that the life science sector’s share of total VC investment is actually down from 28 percent in the second quarter of 2013 to 19 percent in Q2 2014.

While total VC investment is on the rise, Vlahos said, this could also be a factor of “VC dollars … flowing relatively more toward industries that require shorter investment duration and are capital-light.”

Still, the future of venture investment in the life sciences looks promising.

“With almost $3 billion already invested in biotechnology in the first half of the year -- only the second time this has happened in the last 20 years -- 2014 is expected to be one of the strongest years for biotechnology investments,” Vlahos said. “Continued strength in the IPO market in the coming quarters will further strengthen this investment trend.”

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