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Dow Jones VentureSource: Mass. Med-Device Start-Ups See Small Q2 Increase in VC Spending

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By Alex Philippidis

Venture capital figures for the second quarter released by Dow Jones VentureSource showed a slight investment shift toward medical device companies and away from biotech and pharmaceutical businesses in Massachusetts and two other regions where investors stepped up their awards to life-sci companies since last year.

The Bay State's "Route 128" region, anchored by Boston and Cambridge, saw a more-than-doubling of med device investment during the second three months of 2009, to $121.4 million in 10 companies from $59 million in eight during Q2 '08. By contrast, investors shied away from the region's biopharma companies, reflected by a 47 percent drop in investment to $139.5 million in eight companies during the second quarter, compared with $263.9 million in 11 one year earlier.

Yet despite its relatively strong numbers, Boston/Cambridge could not surpass the San Francisco Bay Area, which remained the nation's largest biopharma cluster in terms of dollars invested. According to DJVS, the region racked up $237.3 million in 14 deals in the second quarter, down 16.7 percent from $284.7 million in 17 deals a year earlier (See chart below).

Twenty-five percent of the Bay Area's total came from a single deal — the $60 million in fifth-sequence financing won by Hyperion Therapeutics of South San Francisco, Shawn Jaswal, a research analyst with Dow Jones VentureSource, told BioRegion News.

Where med devices are concerned, the Bay Area's investment activity fell by 53 percent, to just over $199 million in 21 deals from $425.4 million in 24 deals.

That study showed the Bay Area and the rest of California topping the medical device investment chart with $288.8 million in 24 deals, 47 percent below the $547 million in 42 deals recorded a year earlier.

Third highest in investment among the nation's bioregions, for a change, was Colorado, for which DJVS recorded $186.3 million in two deals. But the Rocky Mountain State's unusually high nine-digit investment amount stemmed largely from a single deal, the $145 million, series A financing round won by Clovis Oncology, a Boulder startup.

Colorado's unusual showing also impacted the quarterly results of another venture capital market tracker, the MoneyTree Survey prepared by PricewaterhouseCoopers and the National Venture Capital Association, using data from Thomson Reuters [see related article, this issue].

Like Colorado, the New York Metro area can also explain its year-over-year biopharma investment increase number as stemming in part from a big life-sci deal — namely a "large" undisclosed VC award to Oceana Therapeutics, a specialty pharmaceutical company based in Edison, NJ, Jaswal said.

NY Metro finished the second quarter with $47 million invested in two med device companies, up 20.5 percent from a year earlier when it received $39 million in a single company a year earlier, according to DJVS.

A steeper investment gain was recorded in Washington state, which saw its medical device VC investment rise to $63.4 million in six companies during Q2 '09, compared with $17.9 million in three companies

Washington state enjoyed a slight year-to-year gain among regions recording biopharma investment, with $92.5 million in six companies, more than triple the $17.9 million awarded to three companies in the second quarter of 2008.

New York metro also emerged a winner in the biopharma segment, as investment rose during Q2 to $123.3 million in a total four biopharma companies compared with $113 million to eight in the second three months of 2008.

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Regions falling the shortest in biopharma investment included two next-to-top tier clusters long accustomed to much higher numbers: The "Potomac" region that includes Maryland, which according to DJVS tumbled 72 percent year-to-year, to a single $2.95 million deal from a single deal of $10.7 million. The next sharpest falloff belonged to San Diego, where the $74.2 million in second-quarter awards to eight companies this year was less than half of the $157.8 million awarded to 12 companies during Q2 '08.

As with first quarter results, those findings reflected a shift by life-sci investors toward startups in the best-known regions for the industry — part of an overall move toward safer investments offering less risk, safer in part being investments closer to where VCs live [BRN, April 24].

Nationally, investors poured $1.2 billion into 71 biopharma companies during Q2, down 14 percent from $1.4 billion in 85 deals in the second three months of 2009. Med device VC investment fared worse during the second quarter of this year, dropping 26 percent to $766 million in 79 companies, compared with $1.04 billion in 77.

Sarah Robinson, a research analyst at Dow Jones VentureSource, told BRN that a single quarter-vs-single quarter comparison, even a year apart, isn't long enough to say why investors are cutting med device investment more than they are investment in biopharma companies.

"We would have to see more quarters of data happening the same way," she said.

The 2Q numbers show a less severe, but still tangible, gap between drop-offs in medical device vs biopharma investment than the first quarter. Then, med device investment fell off 51 percent over Q1 '08, to $477 million in just 42 deals, compared with $972 million in 74 deals during Q1 '08. By contrast, biopharma VC spending slipped 21 percent during the first three months of 2009 compared with the year-ago quarter, from $918 million in 69 deals to $723 million in 56 deals.

Jaswal said the life sciences, especially biopharma companies, have seen an uptick of investment since Q1 because they are less vulnerable to the ups and downs of an economy that has continued to skid into this year.

"A slowdown in the economy is not going to impact a potentially new drug from moving to the next level. Given the long life cycle of the development for a drug, and the strong recovery from last quarter, and the steadiness with a year ago, healthcare is not as impacted by these small cycles in the economy given that each company has a promising drug candidate or a device," Jaswal added.

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