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Jul 23, 2012

VC Investors Shun Biotech Startups

  • Venture capital investors continued their stampede away from biotech and pharmaceutical startups during the second quarter of 2012, as both the amount of money invested and the number of deals plunged from year-ago numbers.

    The dollar value of VC deals fell almost 52% during the second quarter from year-ago numbers, with about $696.8 million invested in a total 90 biopharma companies during Q2 ’12, compared with $1.4 billion in 129 deals during the second quarter of 2011, according to the quarterly MoneyTree Report, issued by PricewaterhouseCoopers LLP and the National Venture Capital Association based on Thomson Reuters data.

    The amount of capital poured into first-sequence investments fell nearly 79% since the second quarter of last year to $65.9 million in 14 deals—the smallest numbers in a decade—from $313.7 million in 32 deals.

    Jimmy Rosen, a partner with Intersouth Partners, cautioned that investor aversion to first-sequence financings is less dramatic than numbers indicate, since last year’s Q2 funding was the highest of any quarter in the past 10 years.

    Rosen acknowledged investors remain reluctant to pour capital into biopharma startups because of their greater risk than other tech fields, and because of FDA’s post-Vioxx shift toward more risk-benefit analysis. The agency has trumpeted its quickening pace of approvals on new treatments, expected to continue under the recently-enacted fifth authorization of the Prescription Drug User Fee Act (PDUFA V).

    PDUFA V adds five or more years of data exclusivity to the end of patent terms for “qualified infectious disease products”; creates a faster-review “breakthrough” designation for drugs delivering “substantial improvement” over existing therapies for “serious and life threatening illnesses”; and fast-tracks new rare-disease drugs subject to new guidance to emerge within 18 months.

    “For those specific therapeutic areas, [new investment] could happen right away,” Rosen told GEN. “If there’s a very strong risk-benefit argument to be made for a certain therapeutic or potential cure, investors are more likely to do something about it.”

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