Biotech Venture Funding Slips Below 2010 Levels

Average deal size and amounts invested increased in the second quarter, but totals trail funding of last year.
Oct 02, 2011

Looking back over the first half of 2011 reveals a mixed picture of venture-capital funding performance for the US biotechnology industry. The second quarter of 2011 ended with $1.24 billion invested through 116 deals, a marked increase of 46% in dollars and 20% in deals from the first quarter. In comparing second-quarter performance to the same period of 2010, however, the amount invested on a dollar basis declined 9%, and the number of deals decreased 24%. Comparing the first half of 2011 with the same period of last year shows a decline of approximately $65 million in the amount of venture funding invested.

During the third quarter of 2010, venture investment in the US biotechnology industry declined considerably to $868 million compared with the second quarter 2010 bump of $1.37 billion. The sector raised $3.78 billion in venture-capital funding for all of 2010, slightly beating the $3.72 billion gleaned in 2009 and far underperforming the 2007 and 2008 totals. If investors become disheartened by the slow growth in the US economy, a tightening federal budget and continuing regulatory uncertainly, a similar drop for the third quarter of 2011 may occur.

For the second quarter of 2011, the US biotechnology industry remained in second place behind the software industry in its share of total venture-capital funding, the position in which it ended the previous year. The software industry received $1.5 billion in 254 deals during the second quarter.

Two biotechnology subsegments experienced significant upswings in venture funding during the second quarter of 2011: biotechnology research, up 216% year over year and biotechnology equipment, which gained 197%. Biotechnology human captured the largest share of any biotechnology subsegment, with $819 million going into 70 deals, but this level represented a 2% decline in dollars and a 21% decrease in the number of deals from the second quarter of 2010.

The average deal size for the biotechnology sector was $10.7 million in the second quarter of 2011, up 19% compared with the same quarter last year and up 22% compared with the first quarter of 2011. Biotechnology captured two of the top 10 venture capital deals for the quarter. Intrexon received $100 million, and Merrimack Pharmaceuticals drew $77 million.

One reason that average deal size is up is that investors realize that the time and capital required to bring a new biotechnology product to market continues to grow as companies maneuver through a complex regulatory process that requires extended clinical trials and a large amount of data to verify safety and efficacy. The lengthy regulatory process also gives investors a reason to gravitate toward later-stage funding of companies closer to achieving liquidity.