Life Sciences VC Investing Up in Dollar Value, Down in Deal Volume

2/7/12Follow @arleneweintraub

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the previous quarter and an 88 percent increase over the fourth quarter of 2010. It was the first time since the second quarter of 2010 that early-stage funding topped late-stage funding.

That’s important, because it’s during the earliest stages of drug development when entrepreneurs traditionally struggle the most to raise funding—particularly the much-bemoaned “valley of death,” when a discovery program is beyond the point of being eligible for federal grants, but not advanced enough to attract the attention of most VCs.

Lefteroff says recent investing trends suggest VCs–as well as VC investing arms inside of Big Pharma companies—may be more willing now to take earlier bets on unproven molecules. “It’s encouraging that despite all the problems you hear about in this space, venture capitalists still see tremendous opportunities to develop innovative products and get returns,” he says.

Some subsegments of life sciences did particularly well in the fourth quarter of last year, including companies developing “biosensors,” such as diagnostic products designed to determine which patients should get which drugs. Companies focusing on such products raised $31 million in the fourth quarter of last year. Even the veterinary segment is doing well: Biotech companies developing animal products raised $66 million in the fourth quarter. Lefteroff wasn’t surprised “Veterinary products can be highly profitable once you get them on the market,” he says.

The top five regions for life sciences investing in 2011 were San Francisco, Boston, San Diego, New York, and Orange County, CA. With 26 deals totaling $382.7 million, Orange County pushed Chicago off the list of the top five. In all four of the other top cities, the number of funding deals dropped but the total amount invested increased. In New York, for example, life sciences companies raised $497.6 million—90 percent more than they raised in 2010. But the number of deals dropped from 54 to 47.

Even if the volume of deals continues to fall, Lefteroff says, the fact that more money is going into life sciences is a positive sign. “It indicates a pent-up desire to deploy capital,” he says, “in what will continue to be a vibrant and active sector.”

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