By: Matthew Rossiter
However, Fenwick’s First Half 2012 Life Science Venture Capital Survey highlights a few potential bright spots as well. In particular, while the number of life science financings declined significantly during the first half of 2012, our survey indicates that valuations have improved modestly, and we also see evidence that large biopharma and medical device companies are increasing their support of startup ventures.
Fenwick’s latest survey analyzes venture financings for 186 U.S.-based life science companies over the first half of 2012. One metric used to assess the health of the life science funding environment is to look at the change in share price from one round of funding to the next. In 2012, the trend has been positive, with average price increases of 19% and 26% for Q1 and Q2, in comparison to average price increases of 4% and 11% for Q1 and Q2 of 2011.
Another way to look at the data is to measure how many funding rounds occurred where the price per share increased (up rounds) or decreased (down rounds) from the previous round. For the first half of 2012, up rounds outpaced down rounds 53% to 19%, with 28% flat. This is a modest improvement over results from 2011, which averaged 47% up rounds and 25% down rounds, with 28% flat.
It is important to put these valuation trends in context: fewer life science financings are occurring, and the life science valuation figures trail those of other industries covered by our Silicon Valley Venture Capital Survey. However, the upward trend in valuations is an indication that startups are continuing to develop promising technologies that can justify a step up in valuation – in other words, there is a healthy supply of promising new ideas.
Likewise demand for new ideas with demonstrated potential, in the form of acquisitions of life science startups by large life science companies, also continues to be strong. A recent report from Silicon Valley Bank, as well as blog posts by Bruce Booth (Atlas Ventures) and Bijan Salehizadeh (NaviMed Capital), highlight the continuing strength of the current life science M&A market.