Life-science sector grabbed VC investment in 2004

Life-science sector grabbed VC investment in 2004

Last year was supposedly a banner year for venture capital investments in general, according to the PricewaterhouseCoopers MoneyTree report, which is based on data from the National Venture Capital Association. Still, what does this mean for the life science industry?
Also, what does it mean for the Midwest? Even more particularly, what does it mean for the Midwest life science industry?
Let’s see if we can drill down to this level and find out (I can hear the dentist’s drill revving up sans Novocain). Due to the amount of analysis that I needed to do into the MoneyTree report, I caution you that we may not get to this answer this week. Please do bear with me.
Top-line results reported a total of $20.9 billion of VC money being invested into 2,876 deals. If you do the math, that works out to about $7.3 million per deal. Results from 2003 were $18.9 billion and 2004 represented an 11 percent increase over 2003.
By the way, the number of deals done in 2004 was about the same as 2003. Note that number of deals does not mean number of companies as sometimes multiple deals are done with the same companies. The number of companies funded is actually a lower number.
What apparently fueled this increase was a jump in the late-stage segment of the investments. This is beginning to smell bad for us as the Midwest as a whole and the Midwest life science industry usually play in the seed and early stage segment of investments.
Late-stage investments were $7.2 billion in 2004 (or 34 percent of total investments) versus $4.9 billion in 2003 (or about 26 percent of total investments). This is a big jump (47 percent) in this segment, which means it had to come at the expense of something.
Just to try and put this into perspective, late-stage VC funding puts money into what appear to be recognizable winners prior to going public. While this is good for those companies, it’s not what we have in the Midwest in abundance. It’s also not what we need in terms of risk capital.
According to the report, the amounts by stage were as following:

As we can see, seed-stage funding is a meager 1 percent of the money and only 6 percent of total deals. Even adding in early stage funding brings the combined two to only 20 percent of the total and 35 percent of the total deals. This is not great news.
According to the report, the life sciences sector (which is composed of the biotechnology and medical devices industry) had a total of $5.6 billion in 2004 with investments in 578 companies (or an average of $9.7 million per company).
This is certainly a lot higher than the average. So life sciences was hot and represented more than a quarter of all investments (27 percent). Unfortunately, MoneyTree doesn’t yet have the 2004 data available that breaks down life science VC investment by stage of development or by geography.
Total VC investment in the Midwest region for 2004 was $770.5 million versus $816.8 million in 2003 (or a decline of 6 percent for the year). Before we get overly excited, MoneyTree’s definition of the Midwest is not quite the conventional one.
It includes Illinois, Missouri, Indiana, Ohio, Michigan (so far we are OK), Kentucky and western Pennsylvania. We just crossed over the Mason-Dixon Line by adding Kentucky.
Still, MoneyTree has another region that looks and smells like the Midwest called North Central. This region had VC investments of $422.5 million for 2004 versus $282.9 million in 2003 (which was up 49 percent). This territory is composed of Minnesota, Iowa, North Dakota, South Dakota and Nebraska.
Let’s put these two together to see a composite of the real Midwest:

The composite Midwest region represented about 6 percent of the total VC investment for 2004.
While the life science component of this will require further analysis and another column, the emerging trend signals that it was probably a decent year for parts of the Midwest (such as Minnesota, which is the capitol of the medical device world) but not so good for the rest of the Midwest. See you next week!

Michael S. Rosen is the chairman and CEO of Immune Cell Therapy, a new start-up out of the University of Illinois at Chicago developing cancer vaccines. Rosen is also a founder and board member at the Illinois Biotechnology Industry Organization (IBIO). He can be reached at

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