Less is more for VCs investing in biotech

Print 21 April 2014
Thornton McEnery, Irina Ivanova / Crain's New York Business

Even in an off-quarter, biotech showed itself to be a key driver of New York's growing tech sector, and that momentum will need to continue in the face of stiff market headwinds.

Venture-capital investment in medical and biotech startups dipped slightly in the first quarter of the year, according to a report from PricewaterhouseCoopers/National Venture Capital Association, with data from Thomson Reuters.

The report, released Friday, shows that the biotechnology sector was down from the previous quarter both in the number of deals (down 21%) and the amount of money invested (down 23%). The health care services sector was down 31% in the number of deals and down just 2% in financing. While venture-capital investment in medical devices grew 28%, the number of deals was down 37%. Despite the dip, biotech still managed to carve out a large part of venture-capital in New York's tech scene during the quarter.

"There are fewer companies attracting a large amount of capital," said Dr. James Healy, a general partner at Sofinnova Ventures, a venture capital fund.

Less venture capital financing is also partly a consequence of the public market's success—the number of biotechnology IPOs has quadrupled since 2012.

"Not just specialists, but even generalist investors have started to participate in IPOs," Dr. Healy said.

The silver lining is that the deals that do happen have increased in size. And they're increasingly coming to New York—one the fastest-growing areas for biotech venture capital. "There's been a large increase both in the amount of capital managed by fund managers that are based in [and around New York], and in the number of companies based there," Dr. Healy said.

That volume of capital was apparent in the first quarter. Although only nine New York-based biotech companies received investment, the overall amount of that investment totaled roughly $180.3 million.

But biotech in New York and beyond might be looking at a bit of a slowdown over the next few quarters in the wake of a major sell-off in biotech stocks in recent weeks.

"We're definitely looking at a softening in the public market for biotech," said Greg Vlahos, a partner in PwC specializing in Life Sciences. "We don't expect huge numbers coming through from investment either."

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