Venture capital investments in biotechnology and medical device companies combined to total $4.7 billion (€4.4bn) in 2002, or 22 per cent of all investing, representing the highest proportion in seven years, according to the MoneyTree survey survey from PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association.
The survey finds that over the past five years, investing in Life Sciences has continued at a comparatively steady pace relative to the venture capital market as a whole. The sector only partially benefited from the huge surge in venture capital investing that began in 1998, but, on the flip-side, it did not suffer the steep declines of some technology industries as venture capital fell back to more normal levels by 2002.
Compared to 1998's figure of $2.7 billion (€2.5bn) , investing in life sciences in 2002 was up 70 per cent. Investing in all other industries combined decreased by 12 per cent to $16.5 billion (€15.5bn) during the same period.
Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers, commented: "The life sciences are not impervious to business cycles, but they have a different set of drivers than some of the high tech categories. Besides our aging population, FDA approval of new products continues at an encouraging pace."
"Venture capital has played a vital role in the development of the biotechnology and medical device industries for decades. Life sciences companies require patient capital and venture capital firms are one of the few sources of financing that have both a long time horizon and a high risk tolerance, " added Mark Heesen, president of the National Venture Capital Association.
Steady Increases in Company Valuations
According to data from Thomson Venture Economics and the NVCA, the median valuation of venture-backed Life Sciences companies rose from $17.7 million in 1998, to $32.5 million in 2002, an increase of 80 per cent.
By contrast, median valuations of companies in all other industries fell from $20.3 million in 1998 to $18.4 million in 2002, a decline of 10 per cent. Furthermore, valuations fluctuated widely during the five years period, topping out at $39.5 million in 2000 and declining rapidly thereafter.
Jesse Reyes, vice president at Thomson Venture Economics commented : "The 'valuation inflation' that afflicted many Internet-related companies during the boom had only a marginal effect on life sciences companies. More realistic valuations in life sciences, especially in the early stages of a company's development means that follow-on financing is easier to obtain. The difficulties of down-rounds are largely avoided."
The survey also found that the public market, although weak, accepted seven Life Sciences companies in 2002, or 32 per cent of all venture-backed IPOs last year. These figures compare to nine life science companies in 1998, or 12 per cent of all venture-backed IPOs.