Report Finds Healthy Biotech VC Scene in Massachusetts

October 25, 2012

EvaluatePharmaPharma venture capital may be in the doldrums globally, but not here in Massachusetts. Against industry trends that find some VC firms struggling to form syndicates to back promising early-stage companies, venture funding breached the $1 billion mark for the first time in the state’s active life sciences sector in 2011, according to MassBio’s 2012 Industry Snapshot.

Venture funding has sustained many companies for the long term, if not led to an outright exit, according to the report’s analysis of EvaluatePharma data: most VC-backed companies continue to receive funding if they have not been purchased or floated on the public markets. The data show that there are still some thriving hotspots in an industry struggling to find the cash to fund new drug development.

The news in the venture world has been grim in 2011 and 2012, with signs pointing to one of the worst years for funding rounds in memory. And with the IPO window barely open at all, those floating on the public market are taking significant haircuts and struggling to make any headway once listed.

So it comes as a pleasant surprise to hear that the New England core continues to thrive, with job listings having grown since 2009, according to MassBio—a sign that companies are growing sufficiently to add positions.

Based on the PriceWaterhouseCoopers/ National Venture Capital Association MoneyTree report data, the trade group reports that biotech companies in the state raised $1.07 billion in 2011, an all-time high in a year that was generally disappointing for groups developing human therapeutics.

It is not clear whether that trend can be sustained—2012’s second quarter showed worrisome signs for the industry as a whole, and even the PWC’s data showed that biotechs in New England raised a paltry $107 million.

The second quarter drought in U.S. biotech funding was extreme enough that it caught the eye of PWC and NVCA, which issued a special report on the sector.

But one quarter does not necessarily measure the long-term health of the industry. Using EvaluatePharma data, MassBio sampled 93 Mass. companies receiving VC backing in the past
decade. Of those, only 12 have gone out of business, with 40 still funded with venture dollars, 26 acquired and 15 having floated on the public markets.

The total value of the 15 acquired companies with a specified acquisition value was $5.72 billion, more than the $5.18 billion in venture funding funneled to the 93 companies. The market capitalization of the 15 public companies is $9.06 billion. Thus a long-term trend can be seen— the aggregate exit values clearly exceed the venture investment, although obviously the failure or underperformance of individual companies mean venture money can be thrown away.

Given the worries about the breakdown in the venture funding model and R&D productivity, it is too soon to say that the snapshot identifies trends that will be sustained in the long term. What it does show is that there are signs of health in our sector.

Since 1996, EvaluatePharma has been the premier source for life science sector analysis, delivering exclusive, trusted commercial insight into industry performance through its proprietary platform. EvaluatePharma is staffed by a team of over 85 dedicated healthcare analysts employing rigorous methodologies to collate, organize and deliver the mostup- to-date commercial performance data available. An award-winning editorial team of journalists writing under the EP Vantage name support EvaluatePharma’s analysis. For more information please visit www.evaluatepharma.com.

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