The common wisdom over the past few years is that biotechs are having a rough time attracting venture capital financing thanks to changing priorities for exit strategies and the vagaries in successful drug development and approval. A new analysis, though, suggests that perhaps a shift may be under way - biopharma VC financing totaled nearly $3.5 billion last year, a gain of almost 16 percent over 2010.
Most of that increase occurred in the fourth quarter, when there were 41 deals and financing amounted to $825 million, a 90 percent jump from the last quarter of 2010, when there were 28 deals according to OnBioVC, a research firm that tracks venture capital doings. Overall, there were 160 deals in 2011, compared with 153 during the year before.
"Life science capital put to work over the last ten plus years has been pretty consistent, remaining in the $5 billion to $6 billion a year range," Adam Rubinstein, managing editor of OnBioVC, writes us. "Therefore, it is a misperception that VC is hard to find. What has contributed to this misnomer, in general, is the acceleration of university-based tech transfer offices focused on building patent portfolios and spinning out record numbers of newcos (new companies) who are seeking venture funding, and the contraction of availability of non-dilutive (grant) funding.
"With more early-stage companies and fewer early-stage (grants i.e. Small Business Innovation Research/Small Business Technology Transfer) resources combined with a fixed amount of venture capital (due to the 10-year fund raising cycle of virtually every fund) has combined to yield what has been commonly termed as the 'valley of death,' where in my opinion, this perceived funding gap is an artifact, not reflective of a hard-to-find capital ecosystem but rather a simple and classical example of supply and demand.
"Recently, the life science start-up community has been concerned with the reduction of Series A financings, where critical clinical proof-of-concept, safety and tolerability data is derived. VC, in general, was criticized for shifting their risk-tolerance profile, opting to put risk-capital to work only in later-stage (phase II and III) companies to mitigate the higher risk preclinical and Phase I (i.e. Series A) companies. But that trend too cannot be supported by the data - where 4Q11 saw record numbers of Series A financings closed."
Overall, the nearly $3.5 billion that biotechs raised last year dwarfed the amount of vc backing that went to other sectors - device makers wound up with $1.9 billion and diagnostic companies got $482 million. Biofuel companies, however, walked away with $222 million.
On average, the amount of money raised per round last year by biotechs was $21.8 million, compared with $19.7 million in 2010. And biotechs raised more than medical device makers or diagnostic companies - which raised $19.3 million and $16.8 million, respectively, in 2011. But biofuel companies, on average, convinced vc backers to invest $27.8 million (you can read the report here).
money roll pic thx to amagill on flickr