Life sciences venture capital investment in the second quarter jumped 37 percent over the prior quarter on increased exit activity, according to a new report.

Life science companies raised $2.1 million in the quarter in 206 deals. Deal volume increased 12 percent compared to the first quarter, according to the MoneyTree report. The report was distributed by Pricewaterhouse Coopers and the National Venture Capital Association.

While the quarterly increase is impressive, the year-over-year numbers tell a different story. Dollars invested in life science companies dropped 3 percent, while deal volume fell 21 percent, when compared to the second quarter of 2010.

One bright spot in the second quarter: Average deal size increased to a mighty $10.1 million, the fourth-highest quarterly average in the last 16 years, and largest since the fourth quarter of 2000. That was a 23 percent jump over both the prior and year-ago quarters.

The large average deal amount, plus more exits in the sector, were among the primary factors driving the quarterly growth in life sciences investing, according to the report.

“The rise in venture capital investment going into life sciences during the second quarter can be attributed, in part, to an increase in exit activity,” said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhoueseCoopers (PwC). “The exit market for biotech and medical device companies has been more active over the past year, and exit activity allows venture funds to achieve liquidity in their portfolios. This liquidity enables venture funds to return dollars to their limited partners and make additional funds available to support the rest of their portfolios.”

Three of 22 venture-backed initial public offerings in the quarter involved biotechnology companies. Biotech companies completed seven venture-backed mergers and acquisition deals in the quarter, while other medical or healthcare companies completed 10 M&A deals.

The largest deal was an $805 million acquisition of Berkeley, California-based Plexxikon by Daiichi Sankyo of Japan. Plexxikon is in phase 3 trials with its oral drug for melanoma skin cancer patients.

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