Despite recent reports about declining venture investment in life sciences in the United States, the numbers show most sectors on the upswing so far this year. In fact, most sectors are on track to surpass previous years’ funding levels.

US Venture Financings by Sector (USD Millions)

Note: 2012 projection based on funding between January 1 and August 31, 2012

If current financings trends hold through the end of the year, U.S. life sciences companies, comprising therapeutics, diagnostics, tools and technology, medical devices, and digital health and healthcare IT, will be on track to raise $9.6 billion, 26 percent more than the $7.6 billion raised in 2011 and 42 percent more than the $6.7 billion raised in 2009. Drug developers are on course to see about an 8 percent increase in funding compared to last year—an increase to $3 billion for 2012. Nevertheless, that’s 7 percent less than the $3.2 billion the sector raised in 2009. Therapeutics startups experienced a rebound during the summer months, raising $1.1 billion during June, July, and August—more than the $917 million they raised during the first five months of 2012.

The digital health and IT sector has experienced the biggest surge in funding, as the value of technology that addresses the cost of healthcare increases. These companies are at the convergence of technologies—biology, computing, and wireless communications—offering up novel devices and solutions that address health care delivery. Venture investment in digital health and information technologies has surged since the advent of smartphones in 2007 and is expected to reach $933 million in 2012, compared to just $120 million invested in these startups in 2009.

Value may also be driving the increase in funding for diagnostics startups, as many of these companies’ tests begin to come into use and insurers begin to see their prognostic and preventive value. This is exemplified by the recent $58 million capital raise by CardioDx after Palmetto GBA, a national contractor that administers Medicare benefits, established coverage for its Corus CAD gene expression test. The gene expression test is used to diagnose patients who might have coronary artery disease before a major event like a heart attack. Venture investment in diagnostics developers is on track to reach about $715 million in 2012, about 76 percent more than was invested in 2011.

Industrial biotechnology is another sector that has seen a ramp up in private financings, which are expected to surge 77 percent over the amounts invested in 2011. Most of the surge is coming from strategic investors—big chemical and oil companies—and is necessary so that these companies can bring their technologies to commercial levels. It is also due to the fact that the public markets have battered companies that went public before they commercialized their technology as it has been harder than they expected to achieve their projected production volumes.

Tools and technology companies are the one category of life sciences businesses that is not expected to see an increase in funding in 2012, although total funding is projected to be about 38 percent more than the $534 million raised in 2009. Most of the funding in this sector has gone into later stage rounds for a handful of companies this year, including Intrexon, a synthetic biology platform company that closed a $58 million series E round in April, and IntegenX, a developer of sample preparation systems that raised $39.4 million in a series D round in August. Among the outliers, Warp Drive Bio, a startup with a drug discovery platform, raised $75 million in a tranched series A round in January.

Privately held life sciences companies outside the United States have also seen a rise in investment, although the amount invested remains less than one third of the amount invested in U.S. companies. If the current trend continues, funding of non-U.S. privately held life sciences companies is set to increase 19 percent over the level in 2011.

Global Venture Financings [ex-US] in USD Millions

Note: 2012 projection based on funding between January 1 and August 31, 2012

So far in 2012, European companies command close to two-thirds of the capital invested in private companies outside the United States and about 20 percent of the total is invested in Asia. The numbers in 2012 are skewed by a $250 million private equity investment in February in Bicon Pharm, a Chinese generic drugmaker, and two strategic investments in UK-based biofuels developers, Gazasia and Tamar Energy, which together accounted for $252 million. Israel has become a life sciences startup powerhouse, and accounts for $170 million of disclosed private financing raised by 20 companies so far this year.

It is important to note that 2012 projected financings for privately held companies are based on year-to-date numbers. Although the summer months saw an increase in financing for U.S.-based therapeutics companies, it was not a boom time for global venture financings. Of the $1.9 billion raised by companies outside the U.S. so far this year, only $475 million came during the summer—perhaps because Europe goes on holiday in August. Still, if the trend continues, drug developers outside the United States are likely to see as much as a 13 percent increase in private investment in their companies in 2012 compared to last year.