Biotech Venture Funding Slips Below 2010 Levels - Pharmaceutical Technology

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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.


Pharmaceutical Technology
Volume 35, Issue 10, pp. 38

During the second quarter of 2011, later stage funding increased by 35% year over year to $693 million. Later stage funding also improved when compared with the first quarter of 2011, increasing by 81%. In comparison, early stage funding for the US biotechnology industry declined by 36% from the second quarter of 2010 to $546 million in the second quarter of 2011. Compared with the first quarter of 2011, however, that figure increased 18%.

Those late-stage companies experiencing exit activity during the quarter helped venture funds achieve liquidity and enabled them to return dollars to their limited partners and increase support for the rest of the companies in their portfolios. Biotechnology companies captured three of the 22 venture-backed initial public offerings (IPOs) during the second quarter of 2011. Internet-specific companies led with 11 IPOs.

The biotechnology industry closed seven of 79 mergers and acquisitions for the quarter. The highest dollar deal was Daiichi Sankyo's $805-million acquisition of Plexxikon, a biopharma company based in Berkeley, California. With Big Pharma facing a loss of $100 billion of revenue between now and 2015 due to patent expirations, we can expect to see more acquisitions of biotechnology companies with products in a late stage of development as Big Pharma companies increasingly are looking to external sources of innovation to replenish their pipelines.

Adding to some optimism for the sector, investors who take a longer-term view see high demand for innovative biotechnology products that can treat unmet healthcare needs. In the United States, product demand is being fueled by an aging population and an increase in chronic conditions, such as diabetes. In developing nations, there is a potential uptick in demand from governments seeking to expand the reach of healthcare to more people and to a growing middle class better able to afford care. This demand bodes well for the sector, which should continue to attract a large share of venture capital as the economy improves.

Tracy T. Lefteroff is a partner in the life scienes practice of PwC US,
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