Venture capitalists increasingly placed their bets on healthcare and biotech during 2005, according to a report released Thursday. The number of dollars was up 5 percent from 2004 to $7.3 billion, and there were a larger number of deals.
The biopharmaceutical sector snared the most venture dollars, according to the study by Irving Levin Associates, a research firm based in Norwalk, Connecticut. Biopharma, those drugs that rely on using biotechnology or living organisms for their production, scored $2.1 billion, based on 102 deals with disclosed prices.
In something of a photo finish for second place, the medical device sector and the traditional pharmaceutical sector each accounted for approximately $1.4 billion in venture capital, although there were more deals in medical devices than pharma.
Stephen M. Monroe, senior editor at Irving Levin, said corporate investors made up some of the VC funding in healthcare during 2005.
"The IPO market may be lackluster, but big pharma is hungry for novel, proprietary therapies,” Mr. Monroe said.
Hot SpacesSandy Steever, editor of Healthcare M&A Monthly for Irving Levin Associates, said he expects medical devices and biopharma to remain hot sectors during 2006.
“The stuff we’re seeing in medical devices is mostly the stuff you see used in interventional surgery—stents, pumps, and so forth. It’s really all over the place, but what they all have in common is that they’re high-priced,” Mr. Steever said.
“With biotech, the thinking is that will become profitable as a whole within four years or so, and so you have pharma companies very interested in getting in there early, because right now, they think they can get a deal,” he said.
Despite the increase in deals, the median investment size was slightly smaller. For the year ended December 31, the median investment size was $11.3 million, down from $12 million during 2004. However, the median investment size increased by nearly 19 percent during 2005, compared with 2003.
The top players in healthcare VC are also shifting. MPM Capital led the top 10 venture firms by number of investments during 2005, having participated in 17 investments, followed by Alta Partners, Domain Associates and HealthCap, each with 15 investments.
The most active venture capital investors in the healthcare sectors during the fourth quarter were 3i Group and Abingworth Management, each with five investments.