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Healthcare venture capital ended 2011 with five-quarter high

Brandon Glenn

Healthcare venture capital is still breathing and soon may be off the oxygen tank.

The sector closed out 2011 in strong fashion and posted a five-quarter high in funding and recording “solid” deal activity, according to the latest quarterly report from venture capital database CB Insights.

Of course, one quarter does not a trend make. Nonetheless, the strong fourth-quarter performance is welcome news for healthcare investors and entrepreneurs feeling beleaguered by a weak IPO market, regulatory uncertainty and a future of declining reimbursements from payers and providers.

In the fourth quarter of 2011, healthcare VCs invested $1.9 billion in a total of 172 deals, according to CB Insights.

Perhaps more significantly, healthcare (23 percent) grew as a percentage of all venture capital deals in the quarter after three consecutive quarters in decline. In the third quarter, healthcare investment accounted for 18 percent of all VC deals.

In some regard, the resurgence of healthcare venture capital can be viewed as an example of a rising tide lifting all boats. 2011 was a strong bounce-back year for the venture capital industry, as it enjoyed a 10-year high when measured both by dollars invested ($30.6 billion) and number of deals (3,051), according to the report.

However, it should be noted that other recent reports paint a less-rosy picture of the venture industry. A Dow Jones report found that fundraising — not investing — by venture capital firms in 2011 grew by 5 percent over the prior year, yet was still less than half 2008′s total.

Returning to the CB Insights report, broken down by sector in healthcare, medical device companies (38 percent) were the focus of the highest number of deals, followed by biotechnology (20 percent) and pharmaceuticals (13 percent).

The only note of concern in the report for healthcare startups? Evidence of a “series B crunch.” Series B deals (23 percent) declined to their smallest overall percentage of deals in at least five quarters. “While some would say this is the way markets work, for a company raising money, this can represent a choke point,” the report warned.

The biggest healthcare deals in the quarter were: Portola Pharmaceuticals ($89 million), Agios Pharmaceuticals ($78 million), Rempex Pharmaceuticals ($67 million), Sensors for Science and Medicine ($54 million) and Dermira ($42 million).

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