Biotech venture funding takes a hit, but devices are hot

Venture-capital financing may be at a six-year high, but the picture in life sciences is a mixed one. After a blowout first quarter, second-quarter fundings in biotechnology actually dropped 19 percent, to $1.1 billion, compared to the same period last year, according to data from Dow Jones VentureOne and Ernst & Young. Medical-device investments, however, were on a tear, with VCs funneling more than $1 billion into the sector during the quarter — the highest total on record.

Overall venture investment in healthcare reached $2.36 billion, up seven percent — slightly slower growth than all venture funding, which rose eight percent.

The slowdown in biotech funding could partly be a consequence of the sector’s stellar results in the first quarter, when investment more than doubled to $1.8 billion. But other factors seem to be at work as well. The average size of biotech funding deals fell substantially while the number of deals rose, suggesting that VCs are showing renewed interest in early-stage biotechs spinning out of university research labs for the first time in roughly six years — a trend some VCs confirm. “At the universities we’re talking to, we’re seeing a lot more friends and colleagues and competitors,” says Amir Nashat, a general partner at Polaris Venture Partners.

Generally speaking, this sort of trend reflects Big Pharma’s increased interest in acquiring mid-to-late stage biotechs. A spate of major acquisitions over the past few years have convinced VCs that they can once again count on reasonably early “exits” from investments in young companies. That said, some large deals are still getting funded; Portola Pharmaceuticals, a South San Francisco, Calif., biotech focused on blood-clot treatments, raised $70 million back in May, the fourth largest VC deal in the quarter.

Medical devices, meanwhile, accounted for three of the ten largest deals, including an $85 million second round for Sientra, a Santa Barbara, Calif., device maker focused on plastic surgery and aesthetics. Other major device deals included CVRx, a Minneapolis maker of hypertension devices that raised $65 million in May, and Asthmatx, a Mountain View, Calif., device maker focused on asthma who raised $50 million from Olympus Medical Systems.

Overall device funding jumped 58 percent to $1.05 billion in the quarter.