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US venture investment in life sciences falls again but increases share of total

US venture capital investments in life sciences fell for the second consecutive year in 2002 but have continued to increase their share of total venture investment, according to the MoneyTree survey from PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association.

This apparent contradiction reflects the even more difficult conditions faced by other market sectors.

Venture capital investments in biotechnology and medical device companies totalled $4.7bn last year, a significant fall from  $5.3bn in 2001 and $7bn in 2000. 

Life science's share of total investment in 2002 rose to 22 per cent, the highest proportion in seven years.

Tracy Lefteroff of PricewaterhouseCoopers explained that investment in life sciences has been comparatively immune to the dramatic boom and bust fluctuations that have characterised other areas of the venture capital market, most notably technology sectors. 

‘The life sciences are not impervious to business cycles, but they have a different set of drivers than some of the high tech categories,' he said.

In the last five years investment in life sciences has increased by 70 per cent in contrast to a fall of 12 per cent in all other areas combined.  Life science companies receiving venture capital backing for the first time has fallen by 29 per cent since 1998 but this decrease compares favourably to a 62 per cent fall in all other industries.

Exit conditions for life science investments in 2002 were almost unrelentingly bleak although conditions were better than for other sectors.

Despite the positive spin on the figures in the report there is no disguising the fragility of the life sciences sector.  For all the excitement surrounding its commercial potential, the scarcity of exit opportunities is beginning to impact investor interest.

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