Venture capital investments in the life sciences industry remain strong despite a decline in 2016 from the record-setting 2015 numbers. A report from PharmaVOICE this month breaks down the investments from the past two years. The life sciences stand in second place behind the software industry in terms of total investment dollars. Fourth quarter data is not yet available, but the life sciences share of total venture funding grew to 23% during Q3, a 5% increase over 2015’s third quarter. Biotechnology received $1.8billion across 87 deals in Q3, but this marks a 15% decrease in deal value and a 30% drop in deal volume compared the previous year’s Q3. Medical device investments also decreased in the same quarter-to-quarter comparison (down 23% for deal value and 19% in volume). A five-quarter streak of declining total deal volume continued in the third quarter of ‘16.
Let’s not forget that 2015 represents a record-setting year for VC money entering the life sciences. The industry is experiencing an impressive investment run: 11 consecutive quarters of more than $10 billion in venture capital investment. Though Q3 of 2016 marked the smallest number of total deals since 2010, “quality deals continue to receive funding…the broader ecosystem remains healthy, bolstered by a lift in biotechnology…strong fundraising, and a continuation of the trend toward investments in nontraditional industries” (Tom Ciccolella, PwC). Focusing on the total number of deals as the key indicator of the strength of the market would understandably bring about concern. Though the number of deals has declined, total dollars have not. Venture capitalists now have the luxury of being picky as high-quality startup companies rise. Series A rounds increased dramatically in ’15 and ’16, from the traditional $10mil or less to $50mil or over $100mil per round. Time to market for certain technologies and drugs continues to decrease, which may be a driving force behind a smaller share of life science companies receiving a larger share of the VC funding pool. Additional improvements in cutting-edge science such as the “human genome sequence…computational power for technology, and better in vitro and in vivo assays” (PharmaVOICE) contribute to investors’ behavior as well.
Our team at Pearl Pathways has helped several VC funded companies as well as VC funds directly over the years in navigating regulatory and clinical pathways to successfully launch products to market. We also frequently communicate with venture capital firms to provide education and insights about the life science industry and ever-changing regulatory landscape.