Biotech boost Life sciences venture capital funding jumps, significantly outpacing overall venture funding rate.

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1 Biotech boost Life sciences venture capital funding jumps, significantly outpacing overall venture funding rate. September 2013

2 2 PwC US venture capital (VC) funding for the life sciences sector, 1 which includes biotechnology and medical devices, improved dramatically this quarter. Total funding for the sector increased by 26% during the second quarter of 2013, according to the MoneyTree Report from PricewaterhouseCoopers (PwC) LLP and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Venture capitalists invested $1.8 billion in 174 life sciences deals. While significant improvements were seen in life sciences, venture funding for all industries experienced a slowdown with 913 deals bringing in $6.7 billion in the second quarter, a decline of 9% in dollars and 6% in number of deals year-over-year. However, the quarter-over-quarter trend was positive with both dollars invested and number of deals recording 12% and 2% increases, respectively. The average deal size was 10% higher when compared with the last quarter, but fell 3% from the same quarter last year at $7.3 million. For life sciences, dollar investment increased sharply by 26% year-over-year while deal volume declined by 7% over the same period. Compared with the previous quarter, both dollar investment and deal volume improved by 25% and 2%, respectively. The life sciences share of total venture funding increased to 27% in the second quarter of The biotechnology industry placed second among all industries in the second quarter of 2013 in terms of share of dollars invested. The software industry, which received $2.1 billion from 325 deals, placed first. On a year-over-year basis, biotechnology funding improved dramatically. The segment recorded a 68% increase in dollar value and a 5% improvement in number of deals, with $1.3 billion going into 103 deals. On a quarter-over-quarter basis, biotechnology investment grew 41% in dollar investments and 4% in the number of deals. The medical device industry witnessed a 20% decrease in invested dollars and a 20% decline in the number of deals compared with the same quarter last year. For the second quarter of 2013, medical devices received $543 million in 71 deals. When compared with the first quarter of this year, medical devices investment recorded a 1% decline in both deal value and the numbers of deals. Figure 1: Life sciences funding compared with total venture funding % change (Y/Y) Life sciences funding Total venture capital 1 The MoneyTree life sciences sector includes the biotechnology and medical device and equipment industries. Biotechnology is defined as developers of technology promoting drug development, disease treatment, and a deeper understanding of living organisms; includes human, animal, and industrial biotechnology products and services. Also included are biosensors, biotechnology equipment, and pharmaceuticals. Medical devices and equipment industries are defined as those that manufacture and/or sell medical instruments and devices including medical diagnostic equipment (X-ray, CAT scan, MRI), medical therapeutic devices (drug delivery, surgical instruments, pacemakers, artificial organs), and other health-related products such as medical monitoring equipment, handicap aids, reading glasses, and contact lenses.

3 Biotech boost 3 Life sciences funding by quarter Life sciences investment increased by 26% to reach $1.8 billion in the second quarter of 2013 compared with the same quarter of Life sciences venture funding saw significant improvement in the quarter. It was able to grow 26% while overall VC funding witnessed a 9% decline, said Greg Vlahos, Life Sciences partner at PwC. Life sciences is already off to a strong start, already 7% ahead of last year s pace. The pick-up in early-stage funding bodes well for the continued success of the sector going forward. Figure 2: Life sciences funding trends by quarter Figure 3: Life sciences deal volume by quarter No. of deals Q1 Q2 Q3 Q Q1 Q2 Q3 Q4 Life sciences average deal size by quarter Average deal size increased by 36% year-over-year to reach $10.4 million. When compared with the last quarter, the average deal size grew by 23%. Life sciences had three deals in the top 10 venture capital deals for the quarter. All three deals were in biotechnology, with the largest being $150 million for a drug discovery company in Maryland Figure 4: Life sciences average deal size by quarter Life sciences deal volume by quarter The number of deals for the sector was the second lowest since the first quarter of 2009, with 174 deals recorded during second quarter of This number represented a decline of 7% yearover-year but an improvement of 2% from the last quarter. $ in millions Average deal size; bubble size denotes total funding in millions

4 4 PwC Funding for biotechnology and medical devices Medical device funding was $543 million during the second quarter of 2013, a 20% decline compared with the same quarter of the previous year. The number of deals also fell by 20% to 71 during the second quarter of Quarter-over-quarter, the gap between the venture capital funding split between biotechnology and medical devices has widened. The share of medical devices further decreased from 38% recorded in the previous quarter to 30% in the second quarter of Figure 5: Life sciences investment split for the second quarter of 2013 Biotechnology funding by subsegments VCs are pursuing opportunities in the largest biotech sectors as pharmaceutical and biotech human saw significant improvements in funding this quarter, said Greg. While hurdles remain for life science funding compared with technology, seeing VCs investing in promising biotech sectors shows the continued strength of the industry. Biotechnology subsectors receiving increased funding in the second quarter compared with the prior-year period were: Biotech research, +12,633% to $85 million Pharmaceutical, +145% to $225 million Biosensors, +96% to $45 million Biotech human, +55% to $833 million 30% Biotechnology subsectors receiving less funding in the second quarter compared with the prior-year period were: 70% Biotech Medical devices Biotech industrial, -42% to $21 million Biotech animal, -37% to $8 million Biotech equipment, -4% to $51 million Figure 7: Biotechnology funding by subsegment During the second quarter of 2013, biotechnology funding improved sharply by 68% to $1.3 billion from the same quarter of The deal volume also increased by 5% to 103 compared with the second quarter of Biotechnology s share of life sciences venture increased to 70% compared with 62% recorded in the previous quarter Figure 6: Biotechnology and medical devices funding trends Pharmaceutical Biotech-Industrial Biotech-Human Biotech-Animal Biotech Research Biotech Equipment 2.0 Biosensors Medical devices and equipment Biotechnology Medical device funding by subsegments Funding for only one medical device subsegment increased during the second quarter of 2013 when compared with the same quarter of Funding for the medical diagnostics subsegment increased by 10% to $67 million, while funding for other subsegments declined: Medical/health products, -53% to $64 million Medical therapeutics, -14% to $412 million

5 Biotech boost 5 Figure 8: Medical devices and equipment funding by subsegment Figure 9: Life sciences funding by stage Med/Health Products Medical Diagnostics Medical Therapeutics Late stage Early stage Life sciences funding by stages On a year-over-year basis, life sciences early-stage 2 funding increased by 37% to $825 million during the second quarter of Quarter-over-quarter, early-stage funding grew by 26%. Early-stage deal volume declined by 10% compared with the same quarter last year, but increased 13% to 95 when compared with the first quarter of Average deal size grew 53% year-over-year and 11% quarter-over-quarter to $8.7 million. Late-stage 3 funding improved by 19% year-over-year and by 24% from the last quarter to $987 million. Late-stage deal volume recorded a 2% decline year-overyear and a 9% decline from the previous quarter to 79 deals. Average deal size increased 22% year-over-year and 37% quarter-over-quarter to $12.5 million. Biotechnology funding by stage For the biotechnology sector, early-stage funding increased by 85% from the second quarter of 2012 to $653 million, while late-stage funding grew by 53% over the same period to $616 million. Compared with the first quarter of 2013, early-stage funding increased by 37%, and late-stage funding improved by 45%. The strength of biotech early-stage funding helped to drive the impressive growth in the sector, said Greg. The renewed interest in biotech funding shows that for the right opportunities, VC funding will pour into the sector. Figure 10: Biotechnology funding by stage Late stage Early stage 2 Early stage combines the MoneyTree categories Start Up/Seed and Early Stage 3 Late Stage combines the MoneyTree categories Expansion and Late Stage

6 6 PwC Medical device funding by stages For the medical device industry, early-stage funding decreased 31% to $171 million during the second quarter of 2013 compared with the previous year. Late-stage funding fell by 14% to $371 million over the same period. Compared with the previous quarter, early-stage funding recorded a 4% decline while late-stage funding remained flat. Figure 11: Medical device funding by stage Late stage Early stage First-time funding compared with followon funding During the second quarter of 2013, initial investments in the life sciences sector more than doubled. A total of $328 million was invested, representing a 105% jump from the same quarter last year. Almost half of this improvement was due to one deal. (A new drug discovery company in Maryland attracted $150 million in first-time funding.) Follow-on funding also increased from the same period of last year by 17% to $1.5 billion. Quarter-over-quarter, both initial investments and follow-on funding registered an increase of 162% and 12%, respectively. Figure 12: Life sciences follow-on compared with initial investments Percent of total 100% 80% 60% 40% 20% 0% Initial investment Follow-on investment Regional funding trends San Francisco Bay, 4 Washington Metroplex, Boston, New York Metro, and San Diego Metro received the most life sciences venture capital dollars during the second quarter of The leader, San Francisco Bay, received $504 million, with $346 million going into biotechnology and the remaining $159 million going into medical devices. Figure 13: Top five metropolitan regions second quarter 2013 San Diego Metro New York Metro Boston Washington Metroplex San Francisco Bay Biotechnology Deal value ($ in millions) Medical devices First-time deals in the life sciences sector averaged $9.9 million, and follow-on funding averaged $10.5 million in the second quarter of Table 1: 2013 life sciences second quarter growth factors (Y/Y growth) % Change in Deal Volume % Change in Avg Deal Size % Change in Investments First-time -11% +130% +105% Follow-on -6% +24% +17% 4 San Francisco Bay area includes SF/Berkeley and San Jose.

7 Biotech boost 7 Figure 14: Life sciences funding trends in top five regions Percent of total 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% San Francisco Bay Boston San Diego Metro NY Metro Washington Metroplex Venture capital outlook Fundraising Venture capitalists invested $6.7 billion in 913 deals in the second quarter of 2013, according to Thomson Reuters and NVCA. Quarterly venture capital investment activity rose 12% in terms of dollars and 2% in the number of deals compared with the first quarter of 2013, when $6.0 billion was invested in 896 deals. In many ways it feels like the late 1990s, with information technology driving venture investment and significantly outpacing other sectors when it comes to level of activity and momentum, said Mark Heesen, president of the NVCA. The difference, however, is where we go from here. There will be no tech bubble. IT investing will continue to be the bedrock of the venture industry but at sustainable levels. Life sciences investments is poised for a slow and steady recovery, provided we can continue to see progress on the regulatory front. And as clean energy continues to evolve from a capital-intensive to a capital-efficient model, it is clear that the venture industry is responding to the market forces at work. The increase in early-stage investing is an encouraging sign that entrepreneurs with innovative ideas can get the funding they need to succeed, remarked Mark McCaffrey, global technology partner and software leader at PwC US. As the exit window continues to open, we ll continue to see VCs shifting their focus back to companies in the earlier stages of development. In particular, startups that are able to drive innovation by developing disruptive technologies that are easy to deploy and deliver ongoing value to the user will be of great interest to venture capitalists. 5 5 Thomson Reuters and NVCA news release, Dollars Invested by Venture Capitalists Rise 12 percent in Q July 19, 2013.

8 PwC Research & Analysis PwC About PwC s Pharmaceuticals and Life Sciences Industry Group PwC s Pharmaceuticals and Life Sciences Industry Group ( and is dedicated to delivering effective solutions to the complex strategic, operational, and financial challenges facing pharmaceutical, biotechnology, and medical device companies. We provide industry-focused assurance, tax, and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 180,000 people in 158 countries across the PwC global network share their thinking, experience, and solutions to develop fresh perspectives and practical advice. Contact Greg Vlahos, Life Sciences Partner +1 (408) greg.n.vlahos@us.pwc.com Art Karacsony, Director +1 (973) attila.karacsony@us.pwc.com PwC. All rights reserved. PwC and PwC US refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. NY