The biotechnology industry is an important source for opportunities for new drug development and commercialization. One important metric is the flow of venture capital funding in the sector, which is reporting strong gains thus far in 2014.

Venture capital (VC) funding for the life sciences sector, which includes biotechnology and medical devices, reached $2.5 billion in 195 deals for the second quarter of 2014, according to a recent analysis by PricewaterhouseCoopers (PwC) LLP and the National Venture Capital Association. While this quarter was the highest life sciences investment since the second quarter 2007, it was also the strongest second quarter since 1995, which is the earliest data recorded by the PwC report

During the second quarter of 2014, VC funding for life sciences increased 25% in dollars invested while the number of deals was flat compared to the same period last year. Dollars flowing into life sciences companies accounted for 19% of total VC dollars invested in the second quarter, compared to 28% in the second quarter of 2013. The decrease is due, in part, to the increase in the number of megadeals (investments of $100 million and more) occurring in the software sector. The average deal size for life sciences companies was $12.8 million for the second quarter of 2014, an increase of 26% year-over-year and 35% quarter-over-quarter.

“The uptick in VC investing in Q2 is a direct reflection of the activity we’re seeing in the public markets,” said Greg Vlahos, Life Sciences Partner at PwC, in a company release. “As VCs take advantage of the open initial public offering window and the high valuations in the mergers and acquisitions market to exit, they are putting capital back to work for a new cycle of investments. The competition for dollars among the next generation of life science businesses remains, and businesses looking to attract VC investment need to have compelling stories and a roadmap for their product strategies to showcase their path forward.”

The biotechnology industry had the strongest second quarter since at least 1995, with $1.8 billion flowing into 122 deals and capturing the second largest investment total behind the software industry. It also was an improvement over the first quarter of 2014, in which there were 114 biotechnology deals and representing nearly 40% jump (after excluding two major deals) in investment dollars over the previous quarter. For purposes of the analysis, biotechnology is defined as “developers of technology-promoting drug development, disease treatment, and a deeper understanding of living organisms, which includes human, animal, and industrial biotechnology and products and services. Also includes are biosensors, biotechnology equipment, and pharmaceuticals.”

Biotechnology captured 74% of total life-sciences investment during the second quarter of 2014, identical to the same period last year but higher than the 64% life sciences investments represented in the first quarter of 2014. Two of the top 10 deals in the second quarter were investments in biotechnology companies and together accounted for $320 million. These investments were for $200 million for Intarcia Therapeutics, a biopharmaceutical company using protein and peptide stabilization technology to allow for continuous administration of drugs, and $119.5 million for Proteus Digital Health, which is developing digital medicines that integrate ingestible and wearable sensors with mobile and cloud computing.

Compared to the second quarter of 2013, four of the eight biotechnology sub-sectors saw an increase. The Biotech-Human sub-segment once again saw the largest amount of funding at $1.4 million, an increase of 36%. Biosensors captured the second largest total at $132 million, which represented an increase of 154%. Biotech-animal and biotech-industrial also saw increases in funding from the prior quarter, capturing $80 million and $68 million, respectively. The three biotech subsectors showing a decrease in funding compared to the second quarter 2013 were: pharmaceutical, biotech equipment, and biotech research, which declined 67%, 47%, and 9%,

First-time funding for the life sciences sector (inclusive of both biotechnology and medical devices) in the second quarter 2014 decreased by 20% to $267 million while the number of deals decreased by 18% to 32 deals, when compared to the second quarter of 2013. However, follow-on funding for the life sciences sector increased 34% to $2.2 million and the number of deals increased 3% to 163 deals, during the second quarter of 2014, when compared to the same period of last year.

“Follow-on funding for biotechnology was the highest since at least 1995 as VCs continue to support companies in their portfolio,” Vlahos said in the company release. “Despite the dip in companies receiving an investment for the first time, VCs continue to see high growth potential for the industry thus the overall increase in dollars invested in the second quarter.”

Early-stage biotechnology funding in the second quarter of 204 rose 31% to $941 million in 76 deals, compared with $720 million in 74 deals for the same period last year. Late-stage funding for biotechnology in the second quarter of 204 rose by 20% to $899 million in 46 deals, from $749 million in 46 deals during the same period in 2013.

On a quarter-over-quarter basis, biotechnology funding increased significantly for both stages: early-stage funding rose by 26% and late-stage by 164%. Average deal size for early-stage biotech transaction were $12.4 million and $19.5 million for late-stage deals.