Skip to main content
Premium Trial:

Request an Annual Quote

VC Funding for US Biotechs Slides 19 Percent in '08, Ernst & Young Reports


The largest US life-sciences clusters last year attracted more venture capital than their counterparts in the next-largest tier, but overall VC funding among US bioclusters fell nearly 19 percent during 2008, according to a recent Ernst & Young report.

The annual Beyond Borders: Global Biotechnology Report, released this week, also said “the industry’s general business model is becoming increasingly unsustainable because of the sharp drop in funding and corresponding reduction in R&D and innovation."

Citing the ongoing economic "tsunami," the report showed that VC investment in private biotech companies in 2008 fell nearly 19 percent to $4.4 billion from $5.5 billion a year earlier. E&Y's figure was consistent with data released last week in the MoneyTree Report produced by PricewaterhouseCoopers and the National Venture Capital Association, which said US-based private biotechs together pulled in $4.5 billion during 2008, down 13.6 percent from $5.3 billion in 2007.

Their reports, which relied on data from PricewaterhouseCoopers and Thomson Reuters, also showed that the number of deals rose during that time from 488 to 491. By comparison, Dow Jones VentureSource recorded 302 deals totaling $4.4 billion last year, down 24 percent from $5.8 billion in 349 deals in 2007.

Of the eight clusters for which 2008 venture-capital figures were furnished in the report, the San Francisco Bay Area raised the most VC money, with about $1.2 billion, down from $1.3 billion in 2007. Next was New England, which includes Boston and Cambridge, Mass., with just under $1 billion in 2008, compared with above $1 billion the previous year.

As with last year's edition, Beyond Borders 2009 did not furnish figures for the regional clusters, but represented each cluster as a bubble whose size and position on a chart hinged on both their amounts of VC raised and total capital raised.

Where total capital was concerned, New England outpaced the Bay Area in 2008 and 2007, though both recorded year-to-year decreases: New England's take fell from about $4 billion to about $3 billion, while VC deals in the Bay Area slid from about $3.5 billion to somewhere between $2 billion and $2.5 billion, according to the report.

San Francisco's VC activity could bounce back in coming months, according to E&Y. In the report, it said it expects biotech startup activity to heat up in the Bay Area as a result of Roche's recently completed $46.8 billion acquisition of Genentech, whose South San Francisco, Calif., headquarters campus anchors the region's life-sciences sector.

Roche has promised that Genentech will continue to operate autonomously, but if history is any guide the acquisition could lead to a groundswell of new start-ups in the Bay Area as "talented scientists and executives decide to forge their own paths," Beyond Borders concluded.

Not discussed by the report is how likely all those scientists and executives are to sustain their startups and grow them into mature companies, given the decline in VC investments over the past year in the industry, and the effect of that projected activity on the Bay area's life-sci sector.

Through a spokesman, E&Y said the report's authors could not discuss regional life-sciences trends beyond comments in the report.

Of the remaining six clusters, Pennsylvania topped the group in 2008 VC spending, with about $400 million; followed by New Jersey and San Diego, both earning more than $300 million; the Mid-Atlantic region, which generated $200 million in investments; and New York State and the Pacific Northwest region, each of which drew less than $200 million.

In 2007, San Diego racked up some $800 million in venture capital; Pennsylvania/Delaware Valley generated $500 million; Los Angeles/Orange County drew more than $300 million; New Jersey pocketed more than $200 million; the Mid-Atlantic garnered less than $200 million; and "other" regions generated under $200 million.

[ pagebreak ]

The smaller drop reported by E&Y in VC funding by San Francisco and New England compared with the next-largest bioclusters is also in line with the first-quarter 2009 regional VC numbers issued in mid-April by MoneyTree [BRN, April 24] and Dow Jones VentureSource.

As for total capital invested in 2008, San Diego led the pack of clusters with more than $3.5 billion; followed by New England and the Bay Area, which drew between $500 million and $1 billion; New York State and the Pacific Northwest, which generated a little above $500 million; and Pennsylvania, which pocketed $500 million. New Jersey and the Mid Atlantic collected just below $500 million.

A year earlier, Los Angeles/Orange County surpassed all regions in total capital, racking up more than $5 billion on the strength of debt financings by biotech giant Amgen, headquartered in the LA suburb of Thousand Oaks.

LA/Orange was followed by New England, the Bay Area, and San Diego, with each about $2.5 billion; Pennsylvania/Delaware Valley with almost $1 billion; and New Jersey, Mid Atlantic, and "other," with each pocketing about $500 million.

Beyond Borders cited "the tsunami that is the global financial crisis" as a key factor in the decreased financing available to life-sci companies, especially those in early stages — a challenge it said threatened to upend much of the industry, especially at the seed and early stages.

While the crisis could wipe out many of these firms, "it could also, at the extreme, have implications for the sustainability of the sector and the viability of its business and financing model," the report concluded.

“The industry’s general business model is becoming increasingly unsustainable because of the sharp drop in funding and corresponding reduction in R&D and innovation," according to the report.

In the report’s CEO Roundtable discussion section, the chief executive of Actelion Pharmaceuticals drew an analogy to Charles Darwin’s theory of natural selection, suggesting that stronger biotech companies are poised to devour their weaker rivals beginning this year as a result of the economic upheaval.

“There will be some Darwinian selection, which may not be entirely bad because natural selection implies that the fittest will survive," Jean-Paul Clozel said. "Many of these companies were never really sustainable anyway. As a result, money is going to be more concentrated in better companies, which could be a good thing."

The Scan

Clinical Trial Participants, Investigators Point to Importance of Clinical Trial Results Reporting in Canadian Study

Public reporting on clinical trial results is crucial, according to qualitative interviews with clinical trial participants, investigators, and organizers from three provinces appearing in BMJ Open.

Old Order Amish Analysis Highlights Autozygosity, Potential Ties to Blood Measures

Researchers in BMC Genomics see larger and more frequent runs-of-homozygosity in Old Order Amish participants, though only regional autozygosity coincided with two blood-based measures.

Suicidal Ideation-Linked Loci Identified Using Million Veteran Program Data

Researchers in PLOS Genetics identify risk variants within and across ancestry groups with a genome-wide association study involving veterans with or without a history of suicidal ideation.

Algorithm Teases Out Genetic Ancestry in Individuals at Biobank Scale

Researchers develop an algorithm known as Rye to tease apart ancestry fractions in admixed individuals at a biobank-scale, applying it to 488,221 UK Biobank participants in Nucleic Acids Research.