In a shaky economic climate, where fund raising has become tight and there are decreasing opportunities to exit the market, venture capital firms have become extremely cautious in choosing their investments.
This has led to the trend of low value deals. However, segments like healthcare equipment have got sizeable injections of new funding, with such positive trends set to continue.
"Patent expiration and lengthy approval times have increased the costs of drug development," says Frost & Sullivan Financial Analyst Dr. E. Saneesh. "This, coupled with a slowing economy, has made VC investors reluctant to invest more in new drug development. Instead, they have focused on enhanced drug delivery technologies and product life cycle management technologies."
While investments in pharmaceuticals and biotechnology decreased from 2010 to March 2012, healthcare equipment displayed sustained investments.
"Healthcare equipment is attracting VC investments because the innovations in this segment reduce the healthcare delivery costs, making the delivery easier," explains Dr. Saneesh. "Shorter product development cycles result in faster returns and, moreover, product approvals here are not as complex as those required for drugs."
However, regulatory variations across countries present a barrier for companies wanting to access VC funding. This has also affected fund raising efforts by VC firms.
Another concern is that the high costs and extended approval times related to drug development have decreased the chances of an early exit for VCs expecting a faster return on their investments.
"With the doors of IPO almost shut for them, VCs are now looking at new routes for exit," states Dr. Saneesh. "With the increase of strategic investments and corporate venturing in pharmaceuticals and biotechnology segments, mergers and acquisitions and strategic buyouts have become attractive exit options."
Technologies which reduce healthcare costs and enable safer and faster healthcare delivery are set to attract VC investments. New taxation laws and proposals to establish uniform EU-wide regulations for VC funds will further boost confidence levels.
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