Biotechnology Funding Hits 4-Year High While Startups Seek New Investments

Venture capital investment in biotechnology increased 22 percent last year, while the number of those receiving their first funding declined.

Funding for medical-device and equipment companies also rose 20 percent, with first-time funding falling to a 16-year low, the National Venture Capital Association and PricewaterhouseCoopers LLC said today in a report.

“Life sciences VCs are increasingly focusing on later- stage opportunities that carry less risk, from a clinical and regulatory perspective,” said Jonathan Leff, a managing director at the New York-based venture-capital firm Warburg Pincus LLC, on a conference call yesterday. “This reflects a serious breakdown in the model that has fueled the U.S. leadership in life sciences innovation.”

Venture firms spent $4.73 billion on 446 biotechnology companies in 2011, the highest dollar amount since 2007, and $2.81 billion on 339 medical device and equipment makers. About 153 life sciences companies -- a category that combines biotechnology and medical devices -- received their first round of funding last year, the lowest since 1996.

The Food and Drug Administration approved 30 new drugs in 2011, a 43 percent increase from the year before, and the most since 36 were cleared in 2004. Of those, 15 won expedited approval as “priority” drugs, for therapies that may provide major advances in treatment, and 13 were developed in part with venture capital funding, Leff said.

Current View

The approvals “cannot be seen as a reflection of the health of life-sciences venture-capital investing today,” Leff said, because most of the drug therapies had been in development for a decade or more. The current decline in early stage funding will be seen a decade from now, he said.

“It will inevitably show up in future years as fewer new innovative drugs and medical devices come to market,” Leff said.

Last year’s biggest deal across all sectors was a $300 million investment in Irving, Texas-based Reata Pharmaceuticals Inc., a developer of experimental anti-inflammatory drugs, by an undisclosed firm, according to the report.

About 42 percent of venture capitalists surveyed last month expect fewer life sciences companies to sell shares to the public for the first time this year, compared with 18 percent who expect more initial public offerings in the industry, according to the venture capital group. In terms of funding, 58 percent expect U.S. investments in biopharma will decrease in 2012, with 7 percent estimating an increase.

To contact the reporter on this story: Ryan Flinn in San Francisco at rflinn@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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