Venture capitalists are getting more excited about biotech now that big pharma is on a shopping spree. The MoneyTree report to be released today finds that VC outlays in this year’s first quarter rose 13.5 percent from $6.2 billion invested in the fourth quarter of 2006, and 11.4 percent from the $6.3 billion in last year’s first quarter.

More dollars were invested, but the number of deals across the country fell to 778 in the three months ended March 31, from 884 in the fourth quarter of 2006 and 853 in the first quarter of last year. While seed and early-stage funding declined, later-stage investments totaled $3 billion in the first quarter, 12 percent higher than last year’s first quarter.

The two top investment areas were information technology, which drew $2.8 billion, and life sciences, which drew $2.5 billion. Within those areas, the sector attracting the most venture capital was biotechnology with nearly $1.5 billion, followed by software with $1.1 billion and medical devices with over $1 billion. “The life sciences are coming on,” says John Taylor of the National Venture Capital Association.

Garheng Kong , general partner at Intersouth Partners, a Durham, N.C., venture firm specializing in life science investments, attributes the upswing in biotech and medical gear funding to “a significant dearth of pipelines in large pharmaceutical companies.”

Many pharmaceutical and medical equipment giants, facing difficulty in medical trials and financial pressure to bring new products to market, are turning to venture-backed startups for innovation, he notes. “Pharmaceutical companies have said, ‘We positively will buy companies, we have the need.’ ”

Other factors cited by Kong are an increasing number of new drugs and treatments geared to relatively small groups of people with rare diseases or disorders and a boost in demand for procedures like hip replacements as the population ages. “There is a lot of interest in lifestyle drugs,” he says. “It’s no longer acceptable to just get older.”

Full story in The Boston Globe.[tags]Biotech, Venture Capital[/tags]