New England gets healthy boost

Venture capital investment in New England health industry companies saw a robust 44 percent increase in 2006, with biotech making up the lion’s share of investment in that area. Dave Keating reports.

The results of a Price WaterhouseCoopers and National Venture Capital Association report to be released tomorrow leave little doubt about the preeminence of health industries in New England venture capital investment. VC funding for the sector in New England, which includes Maine, Vermont, New Hampshire, Rhode Island and the section of Connecticut above the New York metropolitan area, jumped 44 percent from 2005 last year.

Pharmaceutical companies have 80 to 100 billion dollars of drugs coming off patent in the next four years, they’ve got to fill that pipeline somehow.

James Connolly

Biotech, healthcare services and medical devices firms received $1.26 billion invested in 119 venture capital deals last year, representing a 21 percent increase in deal volume over 2005. It was the largest amount raised for the sector since 2000, but there was a notable difference between the two years. Last year, healthcare companies received 42 percent of the overall VC investment in New England. In 2000, that number was just 11 percent.

“There are really four key investors who invest in the space, MPM Capital, Shroder Life Sciences, Oxford Bioscience Partners  and Polaris Ventures,” says PricewaterhouseCoopers health industries partner James Connolly. “They collectively raised $2 billion. They were in fundraising mode in ’05 and a lot of that money was put to work in ’06.”

Connolly points out that the reason for the increase in the sector wasn’t just cyclical however. Biotech firms represented two-thirds of all VC investment in the New England healthcare industry last year, and this likely has a lot to do with the urgent need for a pharmaceutical pipeline coming up.

“Pharmaceutical companies have 80 to 100 billion dollars of drugs coming off patent in the next four years, they’ve got to fill that pipeline somehow,” he says. “VCs are increasingly going after biotech companies to do that.”

Another interesting aspect of the findings was the geographical spread. While Massachusetts maintained its usual VC dominance in the region, capturing $1.14 billion of New England’s $1.26 billion invested and 108 of the region’s 119 total VC deals, Rhode Island showed a surprising leap, more than doubling over 2005 with $103.5 million in five deals.

“It was a real surprise to see Rhode Island double,” Connolly says. “Massachusetts is a very expensive place, and we’re starting to see a lot of companies popping up in the Rhode Island area. Some of the people that work in these companies used to live in Massachusetts. They may be going for a cheaper cost of living and cheaper facilities. And it’s only a short distance to Boston.”

Nationally, health industries companies attracted $7.83 billion of VC investment with 833 deals in 2006, a 17 percent increase in dollar volume from 2005.