Summary:
Despite an abundance of funding as well as scientific and technological progress, the environment for investing in the life science industry seems to have changed dramatically. The change has been most dramatic for the biotech sector. In theory, the level of VC investments made in life science at any time should not be significantly affected by short-term fluctuations in stock market activity or the economy. Drought of new public money coming into venture-backed companies through IPOs, however, as well as increasing caution on the part of acquirers have biotech venture investors hanging on tighter to their wallets and checkbooks. Money is still there but it is going to be harder for biotechnology companies to obtain. Particularly true given the increased competition for investment with medical device and equipment companies as well as new competition from biofuels and alternative energy companies for investment dollars. (Published: 01/09/2008)
Notes:
- Q1 2007: record highs in venture investments in biotechnology, medical device, and healthcare firms
- average investments in these areas maintained nearly the same levels through the end of the Q1 2008
- Q2 2008: venture investing in general made a major downturn
- no public offerings of any venture-backed company
- life science
- far fewer venture dollars went to a smaller number of life science companies
- in Q1, U.S. life science venture capital firms made 315 investments aggregating nearly $3 billion
- in Q2, there were 215 such investments aggregating $1.9 billion
- biotech: change even more dramatic
- number of biotechnology venture backings fell by nearly 50% (to 89 investments)
- dollar amount invested fell by more than 40% from Q1 ($919m vs. $1.5b)
- outside the U.S., the venture financing value fell nearly 50% in the same period
- proportion of life science dollars going to biotech has also shifted compared to medical devices and equipment as well as other healthcare ventures
- biotech firms’ share of investments made in the life science industry fell to below 40% from approximately 45% in 2007
- average amount invested in biotechnology, though, remained high in Q2
- more than $10 million
- investments have ranged from $8.4 to 11.8 million over the past six quarters
- Factors behind the change
- biotechnology investments, like most venture capital investments, are inherently risky
- in today’s uncertain economic climate, many investors are opting to sit out and wait for more certainty in the market before they invest
- biotech investments generally take longer to mature than nonbiotech investments
- for those life science investors who are nervous about the long term in the current environment, investments that have a shorter return time, such as those in medical devices and other healthcare ventures, have become more attractive
- emergence of clean energy as an alternative investment category that is growing in favor with long-term investors
- venture capitalists whose portfolios include longer-term investments are shifting their dollars from biotechnology to solar energy, wind power, and other sustainable energy solutions
- constriction/lack of liquidity in the public equity markets
- compare
- in 2007 there were 31 IPOs of life science companies, 11 of them for biotechnology companies.
- in the first half of 2008, four life science firms including one biotech, Bioheart, made IPOs
- decline may result from a number of factors some of which are not specific to life science investing
- general investor apprehension
- the debt crisis
- Sarbanes-Oxley and related regulations
- lack of liquidity in the public markets has also resulted in public companies taking on private investments from venture capitalists
- e.g. Cadence Pharmaceuticals, Antisoma, Xanthus Pharmaceuticals
- investment of venture capital into public companies and later-stage private companies means that even less is being spent on early-stage companies
- lack of liquidity in the U.S. markets has also led a number of biotechnology companies to go public through the London Stock Exchange’s Alternative Investment Market (AIM)
- life science acquisitions have also taken a beating
- compare:
- 47 venture-backed life science companies were acquired in 2007
- only 12 have been taken over in the first half of this year, eight of which were acquired in the first quarter
- take-over values down from 2007
- total value of the 36 acquisitions made last year for which transaction values were made public was $7.4 billion
- so far this year, the aggregate amount of the seven deals for which financial terms were disclosed was $2.2 billion.
- in theory, the level of VC investments made in life science at any time should not be significantly affected by short-term fluctuations in stock market activity or the economy
- drought of new public money coming into venture-backed companies through IPOs, however, as well as increasing caution on the part of acquirers have biotech venture investors hanging on tighter to their wallets and checkbooks.
- money is still there but it is going to be harder for biotechnology companies to obtain
- particularly true given the increased competition for investment with medical device and equipment companies as well as new competition from biofuels and alternative energy companies for investment dollars
