Stubborn facts on biotech financing

By Kristin Schneeman, Program Director, FasterCures

“Facts are stubborn things,” was a saying that originated in the defense of the British soldiers at the Boston Massacre trial, meaning facts are facts and can’t be disputed.  But facts can also be stubbornly difficult to interpret sometimes. 

A new National Venture Capital Association survey was released last week, reporting that venture capital invested in biotech was up in 2011 by 22% from 2010, but that first-round funding was at its lowest level in 15 years, with only 153 drug and device companies getting seeded.

But as the folks at InVivo blog reported, the other major source for data on venture investment, DowJones VentureWire, also released its year-end totals and came to slightly different conclusions: Total biotech funding rose by only 11% -- all of it on the device side.  And InVivo’s own data on early-stage financing showed that slightly more companies received Series A financing in 2011 than in 2010, giving them a more positive spin on 2011. 

Bruce Booth with VC Atlas Ventures took the media to task for making positive data into a negative story.  He looked at the NVCA’s own data (though through a slightly different lens) and came to some different conclusions as well:

• Total VC funding of first rounds in biotech last year was one of the four highest annual totals since 1995;
• The number of first-round startups in 2011 was in line with long-term averages; and
• The average size of a first round investment hit a 16-year high.

So whose facts are the right ones, and whose interpretation of the facts is correct?  What metrics are most important here – the total amount of funding that went to early-stage biotechs, or the number of companies that got funded?  Are bigger individual deals a sign that small, innovative companies are out of luck, or a reflection of a realization that the longer time horizons for a return in life sciences might require bigger up-front investments?  What timeframes are most important – trends over the last 12 months or over the last 12 years? 

And what on earth does any of this mean for patients hoping these companies hold the key to the treatments they’re waiting for?  Perhaps it’s less about the total amounts of money that are flowing into the system and more about how to make sure the right kind of money (venture, government, foundation) is lined up at the right time for the right ideas so inventors and companies aren’t wasting time “circling the airport” looking for the next infusion of cash. 

Do we need some new models or infrastructure to try to make financing more efficient?