PRINT THIS PAGE Health industries receive record share of VC funding
07/06/2005. Source:PricewaterhouseCoopers.
Reversing three consecutive years of declines, health industry companies received a record share of venture capital investment during 2004, leading all other industries and scooping up 30.2 per cent of all VC dollars invested during the year. According to a report released by the PricewaterhouseCoopers Health Research Institute, VC firms invested $6.33bn in health industries during 2004, including companies in biotechnology and pharmaceuticals, medical devices and equipment and health services and health information technology. "VC investment in the health sector has steadily increased, even through the post-Bubble hangover, as investors have, on one hand, sought to diversify their IT-heavy portfolios, and on the other come to recognize the long-term potential of the sector," said Tracy Lefteroff, global managing partner for Life Sciences Industry Services at PricewaterhouseCoopers. "We believe the aging population in the developed world and recent commercial successes of life sciences companies will continue to fuel investment in this sector to a point where investment in health-related industries will rival or surpass IT investments."
The Venture Capital Investment in Health Industries Report is a comprehensive analysis of venture capital investments specifically within the health industries. The report uses survey data from the MoneyTree Survey, released by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.
The benchmark MoneyTree Survey includes three health industry sectors in its quarterly review of venture capital investment: Biotechnology and pharmaceuticals, which received $3.87 billion, or 61.1% of the VC funding going to health industry companies in 2004; medical devices and equipment, which received $1.77 billion, or 28%; and health services and health information technology, which received $687 million, or 10.9%.
All three sectors saw significant increases over 2003, with biotechnology up nearly 10% from 2003's $3.53 billion; medical devices up 13% from $1.57 billion in 2003; and healthcare services up a strong 43% from $479 million in 2003.
The increased funding was due to an increase in the number and size of deals. The number of venture deals in the health industries increased to 696 in 2004 from 666 in 2003, and the average investment increased to $9.1 million in 2004 from $8.4 million in 2003.
"Deal-making helped drive growth during 2004," said Lefteroff. "Among the hottest areas were cancer drug development, new types of stents, pain management therapies, insulin delivery systems, respiratory disease therapies, elder-care services and physician-owned specialty hospitals."
Total venture investment in the health industries was $6.33 billion in 2004, 13.5% more than 2003's $5.58 billion. While 2004 saw strongly increased investment overall, the fourth quarter saw a slight slump compared to the same period in 2003. Fourth-quarter healthcare investment in 2004 was $1.72 billion, down 6.8% compared to $1.84 billion during the same period in 2003.
All three health industries saw fourth-quarter declines during 2004 compared to the previous year, with medical devices and equipment at $465 million (down $13 million, or 3%, from 2003) and healthcare services and technology at $167 million (down $15 million or 8%). Even biotechnology, which saw its strongest quarter of the year with $1.08 billion in investments, was down $98 million, or 8%, compared to the previous quarter.
"We don't see the fourth-quarter drop-off as indicative of any sort of continued reversal," said Lefteroff. "It is lower compared only to a very strong fourth quarter in 2003, which came just as the IPO market was opening up again to meet a lot of bottled-up demand. This year's growth in venture funding appears sustainable and is based on careful analysis of trends in oncology, cardiology, elder care and other fields where research is yielding significant commercial potential."
2004's investments were geographically concentrated, with $3.4 billion, or more than half of the venture dollars invested in health industries, going to companies based in just four areas: San Jose; Boston; San Diego; and New York. In addition, companies in Washington, DC, Philadelphia, Seattle and the Great Lakes region also saw significant increases in investment.
"Even with the remarkable progress in medicine during the 20th century, there is significant opportunity for improving the diagnosis and treatment of disease and the delivery of health services," said Sandy Lutz, director of PricewaterhouseCoopers Health Research Institute. "With an aging global population and push for improved healthcare worldwide, there is unprecedented demand for new categories of products, services and technology to help improve cost, operational efficiency, clinical decision-making and service quality. It is a good sign that funding for entrepreneurial activity in the health industries, based on ongoing scientific and operational innovation in medicine, is very strong."
PricewaterhouseCoopers collaborates with Thomson Financial Venture Economics and the National Venture Capital Association to produce the MoneyTree Survey. The intent of the survey, which is in its 10th year, is to measure equity investments in venture-backed companies in the US and track companies that have received at least one round of financing involving a professional venture capital firm or the equivalent.
For more information on the MoneyTree Survey, go to http://www.pwcmoneytree.com/, http://www.ventureeconomics.com/ or http://www.nvca.org/
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