Venture Capital Dollars Invested in Life Sciences Companies in 2014 at Highest Level Since 2007

Venture capitalists invested US$2.8bn in life sciences in the fourth quarter, reaching US$8.6bn in 2014, according to MoneyTree Report from PwC

Venture capital (VC) funding for the Life Sciences sector – Biotechnology and Medical Devices – increased 49% in dollars but declined 18% in deals during the fourth quarter of 2014, compared to fourth quarter of 2013, according to the MoneyTree™ Report from PricewaterhouseCoopers (PwC) LLP and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. The report, entitled “Biotech funding surges,” shows that VCs invested US$2.8bn in 202 Life Sciences deals during the quarter, versus US$1.9bn going into 245 deals in the fourth quarter of 2013 and US$1.7bn in 197 deals during the previous quarter in 2014.

Overall, investments for full year 2014 in the Life Sciences sector rose to the highest level since 2007 with US$8.6bn invested into 789 deals, a 29% increase in dollars but a 3% drop in deals compared to 2013. Biotechnology investment dollars rose 29% compared to 2013 to US$6.0bn, while the number of deals decreased 4% to 470 deals, making it the second largest investment sector for the year in terms of dollars invested, behind the Media and Entertainment sector. The Medical Devices industry finished 2014 up 27% in dollars to US$2.7bn, and the number of deals remained relatively flat in 2014, compared to 2013.

“The life sciences sector saw five megadeals last year, a testament to the highly innovative biotech and medical device technologies and the resulting confidence of venture capitalists in the business models of these start-ups,” said Greg Vlahos, Life Sciences partner at PwC. “The biotechnology industry attracted record-high venture investments in the second quarter of 2014 and ended the year with even higher investments in the fourth quarter. In addition, the medical device industry continued to show strong growth for the year. This is in line with PwC’s projection in early 2014 of a very strong year for life sciences. Given the strong level of investments in this sector and others in recent quarters, we expect continued high investment levels in life sciences in the first half of 2015.”

First-Time vs. Follow-On Funding

Investments into Life Sciences companies receiving VC investment for the first time in Q4 2014 totalled US$403m – an increase of 35% from the same quarter in the prior year. Life Sciences follow-on funding in the fourth quarter of 2014 surged 51% year over year to US$2.4bn. In fact, follow-on funding for the Life Sciences sector and Biotechnology industry during the quarter achieved the highest level since 1995, when MoneyTree began reporting VC investing levels. For the full year 2014, first-time funding in the Life Sciences sector was US$1.1bn and follow-on funding was US$7.5bn, representing growth of 25% and 29%, respectively. For the full year, first-time deals in the sector averaged US$7.3m and follow-on funding deals averaged US$11.8m.

Funding by Subsegment

When compared to the fourth quarter of 2013, five of the seven Biotechnology subsegments that received investment rose during the fourth quarter of 2014. The biotech-human subsegment captured the largest share of Biotechnology funding, increasing 46% to US$1.7bn compared to the first quarter of 2013. In addition, pharmaceutical increased 60% to US$115m; biotech equipment rose 148% to US$100m; biotech research saw a slight 1% increase to US$39m; while biosensor investments increased 259% to US$28m. The two biotechnology subsegments that saw a decrease in funding in the fourth quarter compared with the same period last year were biotech-animal, down 64% to US$10m and biotech-industrial, declining 74% to US$7m.

Funding for each of the three Medical Device subsegments increased during the fourth quarter of 2014 compared to the same quarter in 2013, including medical therapeutics up 8% to US$368m; medical/health products rising 170% to US$201m and medical diagnostics increasing 216% to US$180m.

Investments by Region

During the fourth quarter of 2014, Boston, Chicago, the San Francisco Bay Area, New York Metro and Research Triangle received the most Life Sciences venture capital dollars. Boston, the leader of the five regions, received US$959m in funding for 32 deals during the quarter, with US$928m going into biotechnology and the remaining US$31m invested in medical devices. The San Francisco Bay Area captured US$839m, New York Metro received US$175m, Research Triangle accumulated US$127m and Chicago rounded the list with US$90m invested.

In 2014, total venture capital dollars invested in the U.S. across all industries was US$48.3bn, including US$14.8bn in the fourth quarter – the highest annual and quarterly investment totals since 2000. “The strong IPO market has played a big role in this robust performance of venture funding, and there are good signs that the trend has legs that can carry it well into 2015,” Vlahos continued. “With a 33% increase in funding for early-stage life sciences companies in 2014, start-ups are likely to continue to do well in the year ahead.”