Five-Year Trend Ends In Health Care Venture Capital, Reports Healthcare Corporate Finance News

FOR IMMEDIATE RELEASE Stephen M. Monroe, Partner
Gretchen S. Swanson, Associate Editor
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Norwalk, CT - January 14, 2009—After five years of annual increases in the amount of venture capital funding flowing to health care companies, 2008 marked a sharp departure from that trend. For the year ended December 31, 2008, the health care venture capital market experienced a 28% drop in funding and an 18% drop in deal volume, compared with the year-end totals for 2007. In 2008, health care companies publicly announced 396 venture capital investments totaling $7.0 billion. The quarterly and year-end deal and dollar totals for the past two years appear in the chart below.

Health Care Venture Capital Deal and Dollar Volume, 2007 to 2008
Quarter/Year
Number of Deals
Total Funding, in Billions
Q1:07
134
$2.8
Q2:07
117
$2.3
Q3:07
121
$2.5
Q4:07
109
$2.1
Year-End Total, 2007
481
$9.7
Q1:08
103
$1.9
Q2:08
105
$1.7
Q3:08
107
$2.0
Q4:08
81
$1.4
Year-End Total, 2008
396
$7.0

 

Medical devices led the health care sectors during 2008, raising 32% of the funding and announcing 30% of the deals, including the largest deal of the year, a $250 million investment by GTCR in Devicor Medical Products, which was started up specifically to acquire medical device companies. The bio sectors followed, with biotechnology companies capturing 22% of both deals and dollars, and biopharmaceutical companies securing 19% of the capital in 17% of the deals. The second largest-deal of the year, a $100 million Series E led by Deerfield Management, was announced by a biotech, Pacific Biosciences, while the third-largest, a $93 million Series B led by Nomura Phase4 Ventures, was announced by a biopharma, OncoMed Pharmaceuticals. Quarterly deal and dollar volume for 2008 is broken out by sector in the chart below.

Health Care Venture Capital Deal And Dollar Volume, By Sector, 2008
Sector
Q1:08
Q2:08
Q3:08
Q4:08
Deals
$Millions
Deals
$Millions
Deals
$Millions
Deals
$Millions
Biopharmaceuticals
16
$358.9
23
$332.4
18
$347.6
12
$310.8
Biotechnology
24
$360.5
26
$467.8
18
$468.2
19
$267.6
e-Health
8
$52.9
9
$57.3
12
$158.9
6
$35.1
Health Care Services and Other
7
$81.6
8
$156.1
8
$93.3
10
$143.9
Medical Devices
32
$663.2
29
$430.2
32
$525.8
25
$579.8
Pharmaceuticals
16
$400.3
10
$213.7
19
$430.4
9
$143.9
Total
103
$1,917.4
105
$1,657.5
107
$2,024.2
81
$1,481.1

“Venture capital investors continue to focus on identifying quality investments in the health care sectors, including companies that are intent on improving the efficiency, effectiveness or safety of health care processes or products,” commented Gretchen S. Swanson, Editor of Healthcare Corporate Finance News. “Conserving cash and staying lean may be paramount for entrepreneurs right now, but venture capitalists are generally expected to continue investing equity in both new and existing portfolio companies.”

Stephen M. Monroe, Partner and Managing Editor of Irving Levin Associates, Inc., stated, “The recession in the overall economy is reflected somewhat in a slowdown in the health care venture capital market, but the health care markets, including M&A, have not
been hit as hard as some other industry sectors. Private, equity-backed companies with solid management and sound strategies are faring better right now than most companies that rely on credit or the public markets for operating capital.”

The top health care venture capital firms for the fourth quarter and the year ended December 31, 2008, based on number of investments, are listed in the chart below.

Most Active Venture Capital Firms In Health Care, 2008
Fourth Quarter Ended                           December 31, 2008
Number of Investments
               Year Ended                          December 31, 2008
Number of Investments
HealthCare Ventures
4
Versant Ventures
16
Novartis Venture
4
MPM Capital
15
Quaker BioVentures
4
New Enterprise Associates
14
Essex Woodlands
3
Domain Associates
13
Frazier Healthcare
3
Frazier Healthcare
12
Highland Capital
3
Flagship Ventures
11
L Capital Partners
3
Delphi Ventures
10
MPM Capital
3
InterWest Partners
10
 
 
Sofinnova
10
 
 
HealthCare Ventures
9
 
 
Kleiner Perkins Caufield & Byers
9
 
 
Novartis Venture Funds
9
 
 
Polaris Ventures
9
 
 
Quaker BioVentures
9
 
 
SV Life Sciences
9
 
 
ThreeArch Partners
9

 


Healthcare Corporate Finance News reports weekly on financial events in the fast-paced venture capital, private and public equity, and merger and acquisition markets for health care companies, and provides subscribers with access to a searchable online database of health care venture capital deals.  This monthly newsletter and weekly email update is published by Irving Levin Associates, Inc., a leading financial publisher and source of market intelligence since 1948.  For more information call 1-800-248-1668.    

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