Venture capitalists are finding the medical device industry less and less lucrative, according to a recent MoneyTree Report, published by PricewaterhouseCoopers LLP (PwC) in conjunction with the National Venture Capital Association (NVCA).
Report findings show venture capital (VC) for the Life Sciences sector, which includes biotechnolgy and the medical device industry, dipped 30 percent in VC funding dollars and 22 percent in deals for Q2 compared to the same quarter last year.
According to the report, venture capitalists invested a total of $1.4 billion during the second quarter, the lowest level since Q4 of 2010. Deal volume also saw a decline, dropping 6 percent from Q1 to 174 deals. When compared to a year ago, funds invested into life sciences companies during Q2 of 2012 decreased 39 percent while the number of deals declined 22 percent from the $2.3 billion invested in 223 deals during the second quarter of 2011.
Officials say reasons behind the steady decline in VC funding proves complex and is multifaceted.
For one, the recent Supreme Court decision to uphold the Affordable Care Act will require medical device manufacturers to pay a 2.3 percent excise tax on “taxable medical device” sales – a tax that may make the medical device industry considerably less appealing to venture capitalists.
According to an article by the Wall Street Journal, the tax is expected to raise $20 billion by 2019.
“Given the regulatory challenges currently impacting the life sciences industry and the amount of capital required to fund these companies, it’s no surprise that investments in this industry have declined for the fourth consecutive quarter,” said Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US, in a PwC press release.
Lefteroff continued, “If funding levels in the second half of the year remain consistent with the first half of the year, VC investing in 2012 will fall short of the nearly $30 billion invested in 2011 but will exceed the $23 billion invested in 2010.
For all sectors, venture capitalists invested $7 billion in 898 deals in Q2 2012, a decrease of 12 percent in dollars invested and a 15 percent decline in deals, compared to $8 billion going into 1,057 deals in the second quarter of 2011. The Life Sciences share of total VC dollars invested declined to 20 percent in Q2, a 9 percent decrease from Q1 2012 to the lowest level since the third quarter of 2002.