What a difference a year makes. In June, IT companies pulled together $102 million for 18 deals in the first quarter of this year – “a 75-percent increase in capital and one more deal than was completed during the same period in 2011,” according to Dow Jones VentureSource.
Private financing by venture capitalists more than tripled in the first half of 2012, according to a study by financial services company Burrill & Company. This follows a June report from not-for-profit foundation Rock Health that showed "skyrocketing" VC funding in the healthcare sector.
But last week, PricewaterhouseCoopers LLP (PwC), in conjunction with the National Venture Capital Association (NVCA), revealed that venture capitalists are finding the medical device industry “less and less lucrative,” according to the two firms’ recent MoneyTree Report.
Contrary to the Dow Jones study, PwC findings show venture capital (VC) for biotechnology and the medical device industry slumped 30 percent in VC funding dollars and 22 percent in deals for Q2 compared to the same quarter last year.
In the first quarter of 2012, dollars invested by venture capitalists in healthcare companies fell to the lowest total in five quarters.
Five-quarter low in funding follows a five-quarter high at the end of 2011 in which VCs invested $1.9 billion in 172 deals.
But, VCs invested a mere $1.4 billion during the second quarter, the lowest level since Q4 of 2010. Deal volume also plummeted six 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,” the report stated.
Now, to keep everything in perspective, the global medical devices industry is fairly large, extremely competitive and highly innovative, with estimated worldwide sales of more than $300 billion in 2011, Zacks Investment Research said. The U.S. is the largest medical devices market, with estimated sales of roughly $95 billion in 2010.
The reason behind the decline? The most obvious is the recent Supreme Court decision to uphold the Affordable Care Act, which will require medical device manufacturers to now 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,”the report explained.
Edited by
Brooke Neuman
