Venture capitalists once again pulled back on investments into biomedical companies in California during 2010, even more so than during the height of the recession, according to a new study released today.
The report titled, “California Biomedical Industry Annual Report,” was produced by California Healthcare Institute, BayBio and PricewaterhouseCoopers.
The findings could provide an important snapshot of the industry as a whole because the Golden State remains one of the largest life science clusters in the world.
Overall, VC’s pumped $2.5 billion into medical device, biotech and pharmaceutical companies in California, a 5 percent drop from 2009 when firms invested $2.6 billion and a 38 percent drop from 2008 when investors pumped more than $3.5 billion into life science firms.
Total nationwide VC investments in life sciences fell about 2 percent, from $6.1 billion in 2009 to $6 billion in 2010.
For the medical device sector, the numbers showed that deal flow was both slowing down and shifting away from seed stage investments, reflecting a national trend. The report, which only analyzed 2010 data through the end of the third quarter, suggested another dropoff in the number of start-up/seed stage investments made into medical device companies. However an exact comparison cannot be made until the final tallies are done.
Perhaps more unsettling was the report’s authors assertion that, “funding for biomedical companies in 2010 seemed to have hit a plateau.”
Some of the root causes for the plateau included the still chilly IPO market and uncertainty over regulation in the United States, particularly the Food & Drug Administration.
“I think what we’re seeing is still a little bit of hesitation to start companies until we have a little more transparency at the FDA,” PwC life sciences unit partner Tracy Lefteroff said. “Companies don’t know the regulatory pathway and it causes VC’s to pause.”
The dried up flow of capital is also having an effect on innovation at all companies. The report included a survey of 93 biomedical CEOs, 44 percent of whom said that lack of funding was forcing them to delay R&D projects, compared to only 18 percent who blamed the regulatory environment.
However, one consolation for the industry is that despite the gloom, there is some optimism among company leaders in life sciences about where the industry is going, at least in California. Forty-one percent of the CEOs said they planned to add manufacturing jobs in the state over the next few years.
In addition, the report gave a glimmer of hope to Massachusetts as well. Of the likely destinations a company would move its workforce to, the Bay State was an overwhelming leader, garnering 76 percent of the vote as the most attractive region to move their business to.