NEW YORK, Feb 16 (Reuters) - When North American biotechnology firms went begging investment bankers for funds six months ago they got the cold shoulder. Now they're running out of ways to politely turn down the money.
The recent surge in biotech stocks, widely believed to be a result of those who profited from Internet shares looking for the next high-flying sector, has created a seemingly insatiable appetite in the investment community for companies selling hope.
"The baby boomers made money on the Internet and now they want to live forever," said John Couch, chief executive of DoubleTwist Inc., a privately held Internet portal that helps scientists in their research efforts.
Couch believes the biggest challenge for the biotech industry is to live up to all the recent research excitement, which could take years to materialize into actual drugs.
"We have to manage expectations so as not to disappoint," said Couch, a former chief executive of Apple Computer Inc.
"Investors are throwing money at the sector and making money doing it," Eric Roberts, a managing director of Warburg Dillon Reed's health care group, told a packed luncheon at this year's BIO CEO Investor conference in New York.
Interest in the sector is booming, with over 1200 attendees at this year's conference compared with 500 last year and 200 the year before.
So far in 2000, at least 12 U.S. companies, mostly in the hot field of genomics, have filed for initial public offerings, said Roberts.
Chase Hambrecht & Quist, a leading U.S. investment banker in the biotech sector, underwrote more than $15 billion in the sector in the first 41 days of 2000, compared with a total of $20 billion in 1999 and seven to eight billion per year in the mid-1990's.
And the fever has quickly spread north of the U.S. border where Canadian biotech companies report fending off a barrage of requests from bankers trying to fulfill institutional demands for biotech shares.
"The demand for biotech products is humongous," said Normand Balthazard, chief executive of healthcare investment fund BioCapital Investments in Montreal.
Even stocks of more questionable quality are seeing their valuations rise as retail investors rush into the sector, and soon those same investors will be screaming for new stories in the form of initial public offerings, said Balthazard.
"You will see IPOs come to market this year with $100 million in valuation that will seem cheap compared to those that have gone public and are now valued at $500 million," added Balthazard.
He expects to see close to a dozen Canadian biotech IPOs this year, a vast improvement over only one in each of 1998 and 1999.
Canadian IPOs to watch out for in 2000 include Cryocath Inc., Quantum Biotechnologies, GlycoDesign Inc., Neurochem Inc., RTP Pharma Inc., MethylGene Inc. and Conjuchem Inc. -- all of which Balthazard boasts are in his portfolio.
Some companies are feeling pressured to go public today, because they fear missing the money train that could pull out of the station with little warning.
"We are being pushed," said Duffy DuFresne, president and chief executive of private Conjuchem.
DuFresne told Reuters that he faces a difficult conundrum: take advantage of the current demand for biotech issues, which could dilute management's focus during a time when his company is in the midst of pivotal clinical trials. Or hold off going public for a year, at which point trial data could lend credibility to the company's story, although funding could potentially have dried up.
"It's not just the investment banks, or investors pushing us, it's ourselves. We want to temper that push but don't want to hurt the company," said DuFresne.
Conjuchem is working on novel chemistry platforms for in-vivo bioconjucation, or simply put an injectable delivery system, primarily for pain relief, that will eliminate the addiction, sedation, and cardiorespiratory depression that accompanies the administration of opiates to a patient.
DuFresne said the challenge for Conjuchem and the sector is to manage momentum, a lot of which is coming from happy investors.
But unlike the biotech boom of late 1995 and 1996, the companies that are seeing their stocks surge, or those waiting in the wings, are of a much higher caliber, said DuFresne.
And although investors are smiling and chief executives are grinning, everybody is asking when biotech's moment in the sun will come crashing to an end.
To all the doomsayers, William Slattery, senior healthcare analyst at Amerindo Investment Advisors Inc. said "Stop complaining and enjoy the ride."
Sean
p.s. Tularik (TLRK) completed their IPO Dec. 99 at US$14 and today the stock hit US$90.
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