Venture Investors Return to Health, Biotech Sectors:
After 1990s Internet Craze Left Some Firms All Wet, They Search for Surer Bets
Article on p. B3A of yesterday's WSJ (Midwest edition), but dated July 17 in WSJ online, with different headline.
(Not sure if this belongs here or on BVF thread.)
Note reference to BTRN near the end.
Dipping Toes Into Biotech And Health-Care Companies
By DANIEL ROSENBERG
DOW JONES NEWSWIRES
CHICAGO -- When Internet and telecommunications companies went over Niagara Falls in a barrel, venture-capital firms scrambled for a lifeboat.
They may have found one in health-care and biotechnology, which have gotten another look from venture capitalists after getting scant attention during the Internet craze of the late-1990s.
Although there hasn't been a huge surge of capital back to health-care companies, which in the first quarter of this year represented 22% of financing rounds by industry, down from 35% in the first quarter of 1995 according to research firm Venture One -- interest is up from a few years ago. In the fourth quarter of 1999, for instance, health-care's share of financing rounds sank to 7% while information technology got the monster's share of interest.
"Ever since the bubble burst, health-care's percentage has been rising every quarter," said Tamar Zemel, senior communications manager at Venture One.
It's not too difficult to see why venture capitalists are returning to health-care. "Health-care service and device companies have done fairly well, and everything else has underperformed so much," said Rob Mains, a health-care research analyst at Advest Inc. "Money will go to the place where there's a reasonable chance of successful fruition, and healthcare is one of those areas."
Even downtrodden biopharmaceuticals are seeing more interest from venture-capital firms, people in the industry said. Biopharmaceuticals accounted for 53% of all health-care financing rounds in the first quarter of 2002, up from 35% a year earlier, according to Venture One.
The criteria for biotech and health investment has changed, however. Right now, investors are more likely to back companies with product candidates further along in the development process. Back in the late 1990s, the investment community pitched money at biotech companies that in many cases didn't have the right chemistry, said Michael Feinstein, senior principal with Atlas Venture.
"During the bubble period, I really think that we and other firms were throwing more money at immature plans and just saying, 'We'll get it sorted out," Mr. Feinstein said. "Now we expect to see a stronger team in place, partly because we've been burned and because it's the right way to manage business."
Michael Carusi, general partner with Advanced Technology Ventures, said that with so many failures in the books, biotech investors are seeking companies that are far along in their pipelines and perhaps even public, as well as very small start-ups, but are less enthusiastic about companies in the mid-stage and therefore more expensive. Some of these mid-stage firms raised a great deal of capital back in 1999 and 2000 but now are struggling for funds.
"For late-stage privates, their valuations now look quite high compared to public companies, which is a problem for them," Mr. Carusi said.
That could prove a boost for biotech companies just getting started, like Ancora Pharmaceuticals, this year's Robert P. Goldberg grand prize winner in MIT's "$50K Entrepreneurship Competition."
Jeremy Bender, a co-founder of Ancora, said he's pleased with the level of interest shown so far by venture capitalists. "We've found that there's a lot of interest in early-stage deals," Mr. Bender said. "A dozen venture-capital groups have been interested in talking to us a bit to learn about our company."
Ancora, which has a technology to develop carbohydrate-based drugs more quickly, plans to begin actively seeking capital in the next few months, so it's up in the air whether investors will back up their interest with their wallets.
For some venture capitalists, however, money is better spent on companies already public, but still in need for cash. Dominique Semon, a partner at MerlinBiomedPrivate LLC, likes that strategy. "We're seeing opportunities in the public sector for private investment," Mr. Semon said. "You get a later-stage product, a company that's already public with liquidity, and in some cases already has a significant profile with the investment community. If you can get them at the valuation of a private company, then why not?"
One company where Mr. Semon's firm recently invested was BioTransplant Inc., a Charlestown, Mass., biotech firm that is working on a treatment for psoriasis with partner MedImmune and on treatment for autoimmune diseases. Last month, BioTransplant received net proceeds of about $9.7 million from its offering of four million common shares at $2.50 each. The shares, which peaked above $18 in late 2000, recently traded at $1.51.
BioTransplant CEO Elliot Lebowitz said people who bought shares were generally friends of the company. "I didn't have to do a road show," he said. "People came to us because they thought the stock was battered and depressed." Mr. Lebowitz agreed that venture capital is showing more interest in public biotech companies, but said the investment community's psychology remains dreary. "We're going through a period of wide-scale fear in the marketplace, and the fear is infectious," Mr. Lebowitz said.
At least venture-capital investors are giving the health-care and biotech sectors another chance.
"There was an exodus from health-care in 1998 and 1999, and a lot of groups that got out then are looking to get back in, which is hard," Mr. Carusi said. He added that his firm never backed away from health-care and biotech even during the Internet market's halcyon days. "The mood is a little bit down," Mr. Carusi said. "The bar is higher and we're digging deeper. We believe in cycles, and most health-care investors know that biotech is highly cyclical. We continue to keep our head down and continue to look for deals."
Updated July 17, 2002 3:46 p.m. EDT |
