Biotech Wrap: Q1 Puts Sector In Critical Condition

With the public markets inching toward bear territory during most of the first quarter, it is not terribly surprising that private equity disbursements have slowed down as well. That market retardation, however, has appeared more like a downward plunge when it comes to last year?s golden VC sector: biotechnology.

Investments into biotech plays dropped off by 53.6% this quarter, compared to the same quarter last year, according to our VentureXpert database. To frame it more clearly, a mere 26 biotech companies received some type of funding round in Q1. Last year, 66 companies had received a cash infusion. In all, venture capital disbursements into the sector totaled $316.10 million this year compared to the $681.37 million the sector took in last year, in the first quarter.

To date, Zyomyx Inc. reaped in the most venture capital, with a $32.60 million round. The company develops protein biochips to identify inhibitors. Investors included Chase H&Q, Burrill & Co. and Alloy Ventures.

Other top money-takers this quarter include Celizome GmbH, which secured a $31 million round and TherOx Inc., which received a $30 million round. Cellzome is a Germany company focused on identifying proteins as potential targets for therapeutics and received funding from investors such as Advent International Corp. and Index Ventures. TherOx has targeted neurovascular and cardiovascular diseases. Citicorp Venture Capital, EDF Ventures and East River Ventures are among its 10 investing firms.

In all, the average round size for the quarter was $12.16 million, and the average amount disbursed per VC firm was $3.68 million.

From Private to Public

IPO activity for the biotech sector hasn?t exactly fallen off in the first quarter, but public debuts haven?t fared very well in the turbulent market.

Of the 14 IPOs that have taken place to date in 2001, three have been from the biotech sector: EXACT Sciences (NNM:EXAS), Third Wave Technologies (NNM: TWTI) and most recently Seattle Genetics (NNM:SGEN), which priced on March 6. As of Monday, only Seattle Genetics was trading above its offering price out of the trio.

Taking a look a back at pricings during Q1 last year, Orapharma (NNM:OPHM), Diversa (NNM:DVSA) and Luminex (NNM:LMNX) all debuted just as the market for biotechnology IPOs began to warm-up. At the close of yesterday?s trading, Orpharma and Diversa were down 55% and 51% from their respective offering prices. Luminex was fairing a bit better, off just 1.47% from its offer price.

Coupled with the reduced flow of funding are earnings warnings from already public biotech companies, including one from Immunex Corp.,(NNM:IMNX), considered a mature biotech company. Immunex, founded way back in 1983 and which has received venture backing, announced Monday that it would drop late-stage studies on Enbrel, for congestive heart failure, because it demonstrated no efficacy in patients. The stock spiraled down and the company was trading 83% below its 52-week high, closing trading yesterday at $12.25.

Colleen O?Connor is Associate Editor of The IPO Reporter and can be contacted at Story Feedback.